After more than four decades of helping investors around the country manage their financial assets, there are a few observations I’ve made over that time that apply across the whole spectrum of investors, without regard to age, income, education, or anything else. I thought I’d touch on a few of the more prevalent errors in thinking that seem to prevail, in order to help you avoid these faults of logic. 

Error no. 1: Using the recent past as a basis for your investment decisions. This is one of the more wide-ranging challenges for most investors. These folks assume that the last five years are usual, in terms of both the market and economy. They also tend to assume that what was a good investment during the period continues as such.

For instance, the consensus thinking that “bonds are safe” is the biggest potential current problem. Not because bonds won’t pay off when they come due, but because of the likelihood of rising rates going forward—instead of trending lower, as has been the case during the past 30-plus years. With the values of bonds and, therefore, bond funds, tending to move in the opposite direction of interest rates, the risk of principal loss is much more likely going forward than at most any time since 1982.

Another error is to believe that this last recession was a typical one. Not hardly. With the Fed, Congress, and the current administration combining to add policy and regulatory challenges, the length of this recovery has been unlike any I’ve experienced during my career. 

Finally, there’s the thought that the national unemployment level is just the way it is; that we will never go back to normal—whatever normal is. In the 1980s, the conventional wisdom was that the national unemployment rate of 5 percent was seen to be as good as the economy could generate and that it just couldn’t go below that. Well, the 90s made that a bunch of baloney and changed people’s thinking to believe that the new low levels were the way things would be in the future.

Error no. 2: You say you’ll be a buyer when others are selling, but then crawl under your desk when the market falls only 2 percent. With the financial media screeching in your ears 24/7 about the totally important meaning of whatever latest development, it’s pretty tough for most investors to tune this stuff out. Most will presume that a drop is simply a precursor to the next big one. Wrong. 

According to the S&P/Dow Jones Indices, crashes—a drop of more than 30 percent from the previous market high—are extremely rare. While we have averaged one crash per decade since the Dow Jones came into existence in the 1880s, be aware that four of them have taken place in the span of just one 10-year period. So, that number isn’t as significant as it may seem.

The Dow also tracked the closing index values during the last 85 years. Their data say that the market has been up or flat 69 percent of the time—59 of 86 years. Take those odds to Vegas, and your retirement would be handsomely enhanced.

The key here, whether or not you do step up and invest when prices are lower, is that you stay with your strategy and don’t let the screamers cause you to act against your own best interests.

Error no. 3: You think the stock market is too risky because prices fluctuate, without realizing that the biggest risk you face isn’t price fluctuation. Your biggest risk, by far, is not growing your assets enough to support you during the more-than-a-third of your life you’ll spend living off of those assets.

While the actual percentages will vary, depending upon your individual needs and goals, we believe that a portion of your financial assets should be protected and the other placed into high-quality accumulation issues. The former category is intended to protect a portion of your assets from market losses, while providing you with a cash flow. The latter is designed to provide you with the growth you need to stay ahead of the debilitating effect of both taxes and inflation—the hidden tax. If you don’t make allowances for these two, you may very well fall short of your income needs over time, even if you have a nest egg set aside.

Error no. 4: You’re willing to work hard for $15 an hour. However, you won’t spend four minutes filling out your company’s 401(k) paperwork. This is true whether you’re just joining the workforce or if you’ve recently changed jobs. Not only does the amount of your contributions reduce the amount of annual income you pay tax on, the money that’s in these and similar retirement plans grows on a tax-deferred basis. So, growth and income are both very, very good to have. 

In addition, if you’re fortunate enough to work at a place that will match your contribution, you’ll be getting additional free money with which to help build your retirement asset base. 

I’ve heard many people say they quit contributing to these plans in 2008 and 2009, and most who did so have yet to start again, fearing the price fluctuations inherent in the markets. Prices fluctuate up, too, with no one complaining. As noted above, the percentage chance of that happening over time is pretty excellent. So, get back in the water and stay there—tsunami or no.

Error no. 5: Your investment decisions are guided by what the economy is doing, when the two really have very little correlation.

Think of it this way.

The economy is what’s happening right now, all around you. This is what the media folk tend to keep you focused on. The reality is this: The economy is based on events that already have taken place, regardless of whether it’s performing well or doing poorly.

On the other hand, the stock market is a forward-looking system. 

One indicator that can be helpful in determining the near-term direction is put out monthly by the Conference Board. It’s called the Index of Leading Economic Indicators. The trends being suggested by the results tend to be good out to the next three to six months. 

Factoring in this and other forward-looking indicators can be helpful in keeping either the cheerleading or doomsaying of the moment in better perspective.

Remember, retirement is a long-term proposition for most of us. By keeping these five things in perspective, you’ll go a long way toward ensuring that you have the assets in the amounts and structure you need to help make that goal—or any other long-term goal—something that’s achievable and manageable.

Michael Maehl is an independent financial adviser and Spokane-based senior vice president of Opus 111 Group LLC, a Seattle-based financial services company.