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Stocks pay off in retirement

By Jennie L. Phipps · Bankrate.com
Tuesday, March 29, 2011
Posted: 9 pm ET

Here's more evidence that staying the retirement savings course pays off. The National Center for Policy Analysis, a nonprofit, free-market think tank, calculated that savers who stayed the course from the bottom of the stock market in March 2009 to January 2011 saw a 77 percent increase in their money. In March 2009 alone, the S&P 500 posted its largest 10-day gain since 1938, and in November 2010 the Dow Jones Industrial Average topped 10,000 for the first time since September 2008.

If you had chosen to save in a money market fund during that period, you would have made an after-tax return of 0.71 percent. If you had switched to a bond index fund, you would have earned 5.39 percent. But someone who put their money in a S&P index fund would have earned nearly 26 percent.

Senior Analyst Pamela Villarreal says, "People who had money invested in equities before the fall and who panicked and switched it to bonds or money markets locked in the loss. If they had stayed the course, they would have been in much better shape."

She believes that this is a retirement planning lesson that shouldn't be ignored. "When you are 60, you may very well live to be 100, and that makes you a long-term investor. So you shouldn't think of equities as something only for people who are 30 years old."

The biggest threat to a comfortable retirement, she says, is inflation. And equities are the only thing that will give you a shot at out-distancing that problem. "Just because you stop working doesn't mean your money should stop working," she says.

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2 Comments
Jeanne
March 31, 2011 at 1:52 pm

Thanks for the tips on what top do with the money! It's confusing as to where to put it, keep it, start it....you get the picture. So I appreciate the help!

Jim Beimel
March 30, 2011 at 11:03 am

Just ask someone over 60 who needed to cashout or receive a distribution at the bottom how excited they were to take a loss and many were unable to earn back the loss over time like a 30yr old can. So it sounds like your selling stocks!