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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Getting started

Risk and time horizon

Rethink how you think about risk


Risk is more complex than a down market. One of the biggest risks is that you won’t reach your goal or won’t reach it within your time frame. That’s why time horizon — how long your investment has to grow — is also a factor in determining the right level of risk for your portfolio. Importantly, the shorter your investment time horizon, the greater the risk of loss on your investment.

How much time do you have to invest?

The risk of avoiding risk

When markets decline, it can be tempting to pull your money out until things calm down. But that could be a mistake. Even if you sell early in a downturn, it’s impossible to know the right time to get back in.

The chart below compares the returns of a hypothetical investment of $1,000 in the S&P 500 from 2011 to 2021.* Investors who remained steadily invested would have seen their $1,000 investment almost quadruple in value, growing to $3,790. However, investors who missed 40 of the best days during that period could see their investment top out at $1,005 — 73% less.

The lesson: Focus on time in the market, not timing the market.

The column chart displays the values of a $1,000 hypothetical investment in the S&P 500 index, excluding dividends, from 12/31/2011 to 12/31/2021 if an investor is invested for the entire period, missed 10 best days, missed 20 best days, missed 30 best days or missed 40 best days. The amount shown if an investor is invested the entire period is $3,790. The amount and loss in value if an investor misses the best days is as follows: 10 best days is $2,108 and a loss in value of 44%, 20 best days is $1,575 and a loss in value of 58%, 30 best days is $1,243 and a loss in value of 67% and 40 best days is $1,005 and a loss in value of 73%. Values in USD. The source for this data is RIMES and Standard & Poor's.

Risk can work in your favor

Even the most conservative investors need to take on some risk if they want to reach their goals. The key is understanding (and respecting) risk in terms of your time horizon.

Looking at some common misperceptions may make risk feel less risky.

FICTION: Risk is all about market volatility.
FACT: While that’s the classic definition, risk is more complex than that. For example, there's the risk that inflation will eat away at the value of your investment or your portfolio won't generate enough income. For most long-term investors, the biggest risk is not reaching their goal.
FICTION: It's too risky to invest when there are major geopolitical and economic challenges.
FACT: History shows us that’s just not true. Consider a hypothetical investment in the S&P 500 on Black Monday, October 19, 1987, when financial markets tumbled 20% in a single day. Someone who stayed invested for the next 10 years would have averaged a 16% annual return.* Of course, every market cycle is different and past results are no guarantee of future results.
FICTION: When a market starts to head down, you should immediately move out of your aggressive investments.
FACT: What’s changed direction is the market, not your investment goal. Running away from risk could mean that you’ll miss all or part of any market upturn. And more importantly, it could mean it will take you longer to reach your investment goal.

Learn more about investing

Now that you understand risk and time horizon, explore these other important investment concepts.

*The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

Standard & Poor’s 500 Index is a market capitalization weighted index based on the average weighted results of approximately 500 widely held common stocks. Standard & Poor’s 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2022 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.