If you are planning for your future then, hopefully, you have put some thought into saving for retirement. When planning for retirement, there are many important factors to consider, such as how much investment risk is appropriate for your financial goals – and your comfort level. If what I have mentioned so far resonates with you, then the next question is, should you invest in stocks or bonds for your retirement savings?

There is a lot to unpack here because every investment has risks. When the stock market goes up, the usual pattern is that the bond market goes down (usually due to the Federal Reserve Bank increasing interest rates), but market cycles can be very strange indeed. In 2018, both the stock and bond markets lost money. In 2019, both the stock and bond markets had great returns. In 2020, the stock market had a sharp decline in the Spring and recovered, while the bond market had a steady, positive return as we dealt with the COVID-19 pandemic. This is precisely why everyone needs a solid education in investment planning, whether working alone or with an advisor, to determine risk tolerance and, on that basis, the right asset allocation to maximize after-tax risk-adjusted returns.

Many investors fear volatility in the market because they worry a market downturn would erase their hard-earned savings, but there is no need to fear volatility. Yes, it represents a risk in the short term, but it also creates opportunities for investors with a long-term horizon to get into the market at attractive price levels.

I want to offer you a few sample investments and what they have returned over time:

• U.S. Treasury Bills – Treasury bills are seen as an efficient proxy for money market accounts. According to Ibbotson Associates, from 1926-2018, these bills’ compound annual return is approximately 3.3 percent. Since inflation was nearly non-existent until 1960, this was quite an attractive return. Consider this: If you had invested just $1 into Treasury bills 1926, your investment would be worth $21 in 2018.
• Long-Term Government Bonds – In the same time period from 1926-2018, long-term government bonds returned about 5.5 percent annually. This means a $1 investment in 1926 would have produced $142 in 2008.
• Stocks – Stocks have yielded solid returns for investors since 1926, as well. Large-cap stocks’ compound annual return is 10.0 percent from that time to 2018. Clearly, this is a much higher return than bills or bonds. To illustrate, that same $1 investment in1926 would have become $7,030 in 2018.