In a previous blog we discussed why taking some risk and investing is important since we have to keep pace with inflation. Basically, we have to keep our purchasing power!
Here’s another way of looking at it. If we don’t invest and take risks, we would just stash our money under our mattress or keep it at the bank because that’s “risk free”. Why don’t we do this to avoid risk? The answer is because we need to outpace inflation. When we invest our dollars we invest them in a wide variety of different things: U.S. stocks, non-U.S. stocks, bonds and more. While the investments behave differently, there will still be some volatility. This is a short term view. Over a period of six months to a couple of years, the market could be down. However, when we consider what the market will look like over the course of 10-20 years, we have a good idea of where it should be.
Understanding this is part of our planning and investing strategy. We plan for the bumps along the way (short term market volatility) but stay in position to take advantage of the long term gains.
As an example, if you ask me today: “What is the U.S. stock market going to do over the next month or 6 months?”. I have no idea. I could make a guess, but that’s all it is: a guess. Over a longer period of time, I have a lot of confidence in where it will be but what I don’t know is the path that it’s going to take to get there.
Though the short term trajectory is unknown, the longer you invest, the more confidence I have in the outcome. Therefore, it’s important to stay invested long term.
I’ve said this before and I’ll say it again: There is no way to, consistently and regularly, time the market and beat it. There just isn’t. However, there is a process that we can employ which gives us a tremendous amount of confidence that you’re going to get to where you need to be, we just need the time to get you there, and you have to stay the course.
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