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Retirement Myths Exposed - Part 1

Retirement Myths Exposed - Part 1

| October 04, 2023

This month I want to tackle some of the myths out there surrounding retirement. I often hear new and potential clients make patently false statements about retirement planning, which greatly concerns me. Where are they getting this information? Who is misguiding them? As it turns out, misguiding beliefs about retirement planning and saving are everywhere. So, this month, I will address some of the comments I hear most often using real yet anonymous examples from my practice. 

Let’s start with one of my favorites: 

Market volatility will erode my retirement portfolio.

If my clients aren’t long-term investors when they come to me, they will be when I’m done with them. Trust me, that isn’t a threat, it’s a promise. Long-term investors are not concerned about volatility eating away at their portfolios because they don’t get hung up on short-term market movement, they focus on the inevitable and continual long-term climb of equity markets. Why? History shows us that volatility has been short-term and growth has been long-term. 

If you take a look at the chart below you’ll probably immediately notice that there are far more green lines than red. As you may know, the Standard & Poor’s 500, or S&P 500, holds 500 of the leading publicly traded companies in the U.S. The index has been around since the 1920s but got its name in 1957.1 

If you look at the S&P 500’s average annual returns from its inception in 1928 through year-end 2022 you’ll see the index returned 9.82%.2 Yet, if you look at the average annual return since the index became 500 companies in 1957 through December 31, 2022, you’ll see that the return is 10.15%.3 

This illustrates two points I often make to clients and those are a) to make money in the stock market you need to have money in the stock market and b) time in the market not timing the market is the only way to have a chance at success in investing. In other words, long-term investors win over time and we know this because of what the below chart so easily illustrates. 

I’ll apologize in advance because it is likely you’ll hear me say these things several more times in this month’s blog.

Source: S&P 500 Historical Annual Returns | MacroTrends 

So far, we have established that volatility doesn’t cause long-term equity portfolio loss. Therefore, volatility isn’t the enemy of your retirement portfolio as long as you have a long-term mindset. And this applies to any retirement saver regardless of when they start saving. We will talk more about this later in the month. 

Now, I want to tell you what really can be the enemy of long-term equity investors - inflation. Everyone knows that inflation erodes the purchasing power of your money which can cause retirement savers and retirees alike to fall short of their objectives. Many folks try to avoid this by moving their investments from equities to what may be deemed “safer” investments. I call this “going broke safely.”

Let's look at a hypothetical example, say you are in your late 50s and afraid of both volatility and inflation, so you move all your money into CDs. Let's say that over the next fourteen years, interest rates decline substantially, and as a result, the value of your retirement savings, now in CDs, declines, and you can no longer afford your home or living expenses. At 70,you will likely need to return to work with no end to your working years in sight. 

The moral of the story is to invest for the long-term and don’t allow fear to cause you to go broke safely. Market history shows us that if this client had invested in the S&P 500 and left her money in the market regardless of inflationary or market conditions, she may never have lost her home or had to return to work.

Until next time…

One last thought: We believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.


1S&P Dow Jones Indices. "Icons: The S&P 500 and The Dow."

2S&P 500 Data. "Stock market returns between 1928 and 2022."

3 S&P 500 Data. "Stock market returns between 1957 and 2022."

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.