Many Fortune 500 employees and retirees prefer to save their money in a bank or credit union. Saving in a bank or credit union is very low risk because your principal is federally insured up to the maximum limits. As long as you stay within the guidelines, the risk of losing any money is slim. Of course, the returns are very low because of the built-in safety. If you don’t want your money to fluctuate, local banks and credit unions are great places to save. There are also many online banks that have better rates than what you might find locally. We suggest that Fortune 500 employees and retirees do a search at www.bankrate.com for the best interest rates. You might also consider a fixed or fixed-indexed annuity for some of your safe money. If you don’t mind your money fluctuating and can emotionally and financially handle market swings, perhaps investing in stocks would be appropriate.
Most Fortune 500 investors say they can handle market swings but when it happens to your own money, it can be nerve-racking. Look at real numbers, not just percentages. For example; if you feel you can handle a 10% loss, look at the dollar amount instead of the percentage. If you have $100,000 to invest, can you stomach seeing your account drop $10,000 and your new balance at $90,000? How about a loss of $20,000? When the stock market declines 10% to 13%, it is called a normal market correction. On average, it takes about four to eight months to recover. So, if you can’t handle a $10,000 to $13,000 decline, don’t put your money into the stock market. If you can tolerate the decline and understand that it will take about four to eight months to recover, perhaps the stock market will be a good fit for you and your money.
When the stock market drops 20% or more, it is called a bear market. In dollar terms using the same $100,000 example, that would result in a $20,000 decline. Keep in mind that many bear markets involve a 40% or more decline (or $40,000). How long do bear markets last on average? If the S&P 500 falls at least 20% or enters a bear market, it will take about 22 months to recover or almost two years.
The average decline is normally about 30%. Most of the time, the economy and stock markets are growing as measured by the DOW and S&P 500. When you look at the markets by each decade, 70% to 80% of the time the markets go up. There are normally two or three years in each decade that the markets will pull back or decline. When the markets pull back, those are prime buying opportunities. Just to put things into perspective: From the 1920s until the date of this writing, the S&P 500 has averaged about 9% per year. The oldest mutual fund in the nation, MFS Massachusetts Investors Trust, has also averaged about the same over 9% per year since July 15th, 1924. Of course, it's important that Fortune 500 employees and retirees note that past performance is no guarantee of future results and your returns and results will certainly vary depending upon many factors.
