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Can Stocks Save Your Retirement

March 23, 2012 by staff 

Can Stocks Save Your Retirement, The market’s high volatility and low returns have increased the appeal of ‘safer’ investments. But the road to financial security is paved with equities. Here’s why. After suffering through the “lost decade” for stocks, investors were taken on a roller-coaster ride in recent weeks — and the future looks to hold more of the same: a highly volatile stock market and lower annual average returns.

You’d think that might mean that investors whose main goal is a comfortable retirement should be anywhere but in stocks.

Not so. Despite the bleaker outlook going forward, the stock market is still about your only hope of overcoming the bite that inflation and taxes will take out of your retirement savings.

“The future real (after-inflation) return of a traditional mix of stocks and bonds may be closer to 2% than the 5% average of the past,” said Chris Brightman, the head of investment management at Research Affiliates in Newport Beach, Calif.

And the ride will be bumpier. Brightman said the annualized standard deviation of monthly stock-market returns was 15% for the past decade, up from about 10% in the 1990s and 1960s. Still, he said, “the average recent volatility of 14% to 15% is only slightly higher than the 13% to 14% level during the 1970s and 1980s.” Since 1831, the average is 14.5%.

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