Properly used, the word “Volatile” would simply describe the randomness of equity returns below AND ABOVE (don’t forget above!) their long-term trend, which has been compounding at around +10% for close to the last century. The issue is that human nature (& the financial media) reacts far more emotionally to declining markets than it does to rising markets. This highlights one of the two most overwhelming misperceptions that threaten one’s ability to make and stick with the main plan of not running out of money in retirement.

Every dollar needs a purpose and once you have pinpointed the purpose of your money, it is only then that you can develop an investment plan that can accomplish a goal. Investing without a purpose will usually lead to overreactions at the worst possible moments. (i.e. buy high & sell low)

The second misnomer to which this can derail is: People seriously underestimate how long they’re going to live in retirement, and thus miscalculate their cost-of-living increases over that long retirement. If your bills are in US Dollars, there hasn’t been a better long-term hedge to inflation risk historically than US Stocks.

Allowing yourself to fall prey to either of these misconceptions would seriously impair your chances to create and maintain an inflation-fighting income in retirement. But BOTH overreacting to “volatility” and underestimating how much your cost of living may go up during your retirement could very well lead to applying for that open position at Walmart as a Door Greeter, jk…

See CNBC’s feature including Sam Huszczo, CFA, CFP on a Mid-Year Financial Check-In in the top link below: