Investors may underestimate how quickly market conditions can change

Recent market gains can create the impression that stocks will always recover quickly, investment researchers Andy Clarke and Nelson Wicas said in a discussion about portfolio construction and behavioral finance. They noted that stocks have endured historical periods of weakness lasting a decade or more.

The researchers also cautioned that investors may discount the risk of a future inflation shock. They said automatic retirement-plan features, including enrollment, target-date defaults and rising savings rates, have helped people overcome inertia and improve retirement preparation.

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