Running the Investment Marathon

If you’ve ever watched Olympic running events, you’ve seen that an athlete’s strategy for winning depends on the goal. Sprinters run as fast as they possibly can. They can’t win their short races with a distance runner’s slower, energy-conserving pace. Similarly, a marathon or other long-distance runner can’t win using a sprinter’s maximum-effort, go-all-out strategy.

When you invest your retirement savings, you’re in a marathon event that will last your entire career. Your goal is to be able to afford a comfortable retirement, and your best chance for success is to use an investment strategy that can successfully go the distance — by taking advantage of long-term investment growth trends.

Sprinting’s Problem

What happens if you invest like a sprinter instead of a marathoner? You move your savings around as the markets shift. When an investment is down, you jump out of it and switch your money into whatever investment happens to be performing well at the time. If you’re really focused on short-term results, you might even decide to reduce or stop your retirement plan contributions until the markets improve.

The problem with sprinting after better returns is that you need to time your moves just right. Even professional investors have great difficulty doing that consistently. Whenever you bail out of an investment, you risk missing out on future gains if the investment turns around again. Meanwhile, the value of your hot new investment might peak soon after you jump in. History shows that major stock market advances have often occurred during just a few trading days, and being out of the market during those unpredictable times greatly reduced returns.

Going the Distance

With a long-term strategy, you don’t have to sprint in and out of shifting markets. By remaining invested with a well-diversified asset mix for many years, you’ll position yourself to gain, regardless of which investment type is winning the short-term race.

 

Long-term Investing Has Overcome Poor Short-term Performance

Annual Returns %

 

S&P 500

Stock Index

Lehman Brothers

Aggregate Bond Index

 

1997

33.36

9.64

1998

28.58

8.70

1999

21.04

–0.82

2000

–9.10

11.63

2001

–11.88

8.44

2002

–22.10

10.25

2003

28.68

4.10

2004

10.86

4.34

2005

4.93

2.43

2006

15.78

4.33

Average Annual Total Return 1997-2006

S&P 500 Stock Index1 8.44%

Lehman Brothers U.S. Aggregate Index2 6.24%

Investment returns measured by the 1S&P 500 Index, an unmanaged index of the stocks of 500 major corporations; 2Lehman Brothers U.S. Aggregate Index, an unmanaged index of U.S. government, corporate, and mortgage-backed securities with maturities up to 30 years.

Past performance does not guarantee future results. Your investment returns will be different. Investment cannot be made in an index.

Sources: Callan Associates and Russell Data Services

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