You may be familiar with the following disclaimer:
"Past performance is no guarantee of future results."
The Financial Industry Regulatory Authority (FINRA), which oversees the securities industry, requires this disclaimer on all investment
advertising and marketing materials.
Because the historical record for long-term
investing is remarkably consistent, it can be an excellent foundation
for setting expectations and making investment decisions. However,
the disclaimer serves as an important reminder that while the
past record is impressive, there are no absolute guarantees that
you will come out ahead.
The securities markets don't always
work in predictable ways. New precedents can always be set. There
are many forces that can have a negative impact on the markets
— for instance, political turmoil at home or abroad, changing
interest rates, disappointing economic forecasts. As an investor,
you almost always have to learn to deal with a certain degree
of uncertainty. The good news is that time and the historical
record are solidly in your favor.
Jeremy Siegel, The Wharton School
What does Jeremy Siegel of The Wharton School have to say about planning for the unpredictable?
For planning purposes, it's best to assume
that the market will continue to operate as it has in the past, and that
you will be faced with one or more substantial declines during your investing
lifetime. You should know how you will react to those declines. In order
to receive the benefit of long-term returns, you need to be invested through
the market's valleys as well as its peaks.
If after an honest self-appraisal, you feel you
can't stand the risk inherent in the stock market's short-term
swings, talk with a qualified financial planner or investment adviser,
who can help you tailor an investment program to your individual needs.
Jeremy Siegel, The Wharton School 