Long-term investment strategies

Key Points

  • Staying invested for long-term growth can help you keep up with inflation.
  • Adjust your retirement income strategy to withstand changes in the markets.
  • Longer lives provide more flexibility in investing.

Staying the course with a plan for long-term investment can pay off over time.

If you are in retirement or near retirement, it may be tempting to place your savings into low-return conservative investments. However, you should also consider the risk that you may outlive your assets or that your assets will not keep pace with inflation.

When you are further away from retirement, time is your most powerful asset. It may be tempting to pull out of the market if you need extra cash or when the market is shaky, but being out of the market can cause you to miss valuable opportunities if stocks should rise.

Choose investments insulated against inflation to plan for retirement

Inflation has been a consistent fact of life in our economy. While the inflation rate varies from year to year, since the mid-1980s it has hovered in the 2%-4% range. An inflation rate of 3% may not seem like a big deal, but over 20 years it would raise the price of a $.42 postage stamp to $.76. How would it increase more expensive purchases?

  • A $1,000 refrigerator would cost a little over $1,800.
  • A $23,000 car would sell for $41,540.

The longer you live, the more these kinds of price increases could affect your retirement lifestyle choices — unless your investment portfolio is designed to keep up with inflation.

Even at a moderate 3% rate, inflation can cut the purchasing power of your retirement savings almost in half over 20 years. If you're entirely invested in cash and short-term investments, these assets are likely to shrink in "real" value during a long retirement.

By comparison, stocks have historically outpaced inflation and provided strong returns over the long term. If you are concerned about losses in the stock market, there may be ways to adjust your asset allocation so that your overall portfolio is somewhat less volatile — without giving up all of its growth potential.

Enjoying a longer life

People are living longer these days, meaning your retirement savings may have to last a long time as well. How long? According to the Social Security Administration1

  • A 65-year old man can expect to live, on average, to 84.3.
  • A 65-year old woman can expect to live, on average, until age 86.6.
  • About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Longevity trends suggest that these remarkable numbers will continue to rise.

Your total investment time horizon is longer than you may have thought. Depending on your age today, you could be creating and managing an investment strategy for 20 years or more to ensure you don't outlive your retirement savings.

Market timing can be costly

It pays to stay with long-term investments. History shows that the markets have bounced back after losing value and it's likely this will happen again should major dips occur in the future. As the chart below shows, missing even a handful of days can have a long-term impact on your savings.

The graph below, from our partner Lord Abbett, shows how a hypothetical $10,000 in the S&P 500 index would have been affected by missing the market's top-performing days over the 25-year period from January 1, 1992 to December 31, 2017, which consists of over 6,000 trading days2

The impact of staying invested over the long term

Markets tend to recover

History is on the side of investors with a long-term investment approach. Volatile markets are a fact of life — as are market recoveries.

Be patient and stay invested. Markets tend to bounce back from downturns, typically with a healthy revival.

An Ameriprise financial advisor can help you define and create a strategy to give you the best chance for long-term success.