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Looking Long

Jonathan Clements  |  August 27, 2016

STOCK INVESTORS this year are fretting over Brexit, tighter monetary policy and lackluster economic growth. But every year, there’s another compelling reason to bail out of the stock market. Think about the past half-century: We’ve had wars, political crises, financial crises, double-digit inflation, a double-dip recession, terrorist attacks and more. And yet, if you had stashed $10,000 in a global stock portfolio at year-end 1969 and sat tight through all the subsequent turmoil, you would have more than $450,000 today.

“That sounds wonderful,” you might respond. “But I’m not 20-years-old anymore, so I don’t have that sort of time horizon.”

Don’t be so sure—for two reasons, which I discuss in my new book, How to Think About Money. First, if you have taken reasonable care of your health, there’s a decent chance you will live to age 90—and, even if you don’t, your spouse might. The implication: Folks who are approaching retirement might have 30 more years to invest. That’s plenty of time to ride out stock-market declines and earn healthy long-run gains.

Second, your time horizon may extend beyond your own life expectancy. Suppose you are age 80 and you have money you plan to bequeath to your 20-year-old granddaughter, who will then use the inheritance to pay for her own retirement. The investment time horizon for this money might be 50 years, over which the stock market will likely clock dazzling gains.

One caveat: If you’re going to make a long-term commitment to stocks, you want to do everything possible to ensure your tenacity and patience—and that of your heirs—are rewarded. That means holding down investment expenses and diversifying broadly, thereby ensuring your strategy isn’t derailed by high costs or a few rotten stocks. My advice: Put maybe 60% in a total U.S. stock market index fund, like iShares Core S&P Total U.S. Stock Market ETF, and 40% in a total international fund, such as Vanguard FTSE All-World ex-US ETF.

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