Happy New Year from A&I!
Optimism for the year ahead!
Last week, we learned that volatility is not the same as risk. This week, let’s discuss two risks the long-term investor faces: they may need to pull income from the equities during a decline. More on a simple, straight-forward solution for that problem in a minute. The bigger problem for a long retirement is inflation.
Because of the volatility, an investor might want to choose an investment that pays a fixed income, like a bond or bond fund. The problems are twofold: an immediate problem and a long-term problem. Right away, a fixed income investment, in today’s low interest rate world, may pay an income too low for most investors. And over the long haul, inflation is going to make the income even lower. Hence, equities likely provide the long-term retiree a better chance for real-life success. Odds favor an investor who can focus on the total return of the investment—the long-term growth plus dividends provided by equities.