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The Arithmetic of Loss
Here’s what I know for sure…
The financial markets will go up, and the financial markets will go down.
Certainly not a brilliant financial analysis, is it?
What makes the financial markets go up and go down? That’s the BIG QUESTION, isn’t it? Because if we knew that we’d have an excellent chance of doing very well investing, wouldn’t we?
Surprisingly, the answer is actually quite simple. It’s the economy and market conditions, e.g., interest rates, price of energy, investor sentiment (emotions), consumer purchasing, etc.
As you know, sometimes the market “forecasts” call for “cloudy” conditions or “stormy” conditions or sometimes it calls for “great weather”. And sometimes we get almost “perfect weather”, don’t we? Think 1995, 1996, 1997, 1998, and 1999.
In those years, we had almost “perfect weather” in the financial markets. If you had invested $100,000 in the S & P 500 Stock Index in January of 1995, by the end of 1999 your account would have been worth about $272,000. That’s almost a 23% average annual return. Wahooooo! I’d bet you’d be smiling when you were telling your friends or business associates how well you were doing, now wouldn’t you? Sure you would.
However, without much warning to the “public” (that’s you) “storm clouds” appeared in the markets followed by a severe “downpour” of losses. So, from 2000, 2001, and 2002, your $272,000 sunk to $163,000. If that describes you, it didn’t feel too good, did it? If that was your 401K earmarked to fund your retirement, it now was a “201K”! That wasn’t funny if it described you, was it?
Now consider this – preserving value in down markets has historically been as important, if not more so, than participating in rising markets. Here’s why: If your stock portfolio gained 10% for three years in a row, your average annual compounded return would be 10%. But if in the fourth year your portfolio suffered a 10% loss, your average annual compounded return for the four year period would have fallen to 4.6%.
To get back to an average annual return of 10% over five years, you would need a gain of 34% in the fifth year! Good luck!
Just think what that would have meant to you if you had been planning on retiring in 2000 or 2001 or 2002. It likely meant that you couldn’t retire or that you retired to a much reduced retirement lifestyle and that you couldn’t do what you had planned and dreamed of doing in retirement.
There is a way that you can almost have your cake and eat it too in investing. I’ll show you how to get stock market-linked returns with no downside risk! And those returns will be tax-free too!
More Free Advice from The Retirement Sage:
Early Retirement? Or Retire With More Money Than You Even Imagined?
The Save or Invest Dilemma
Your Three-Legged Financial Stool
The Arithmetic of Loss
Are you ready to stop the Arithmetic of Loss in your financial retirement plan?
If so, contact The Retirement Sage today and get the expertise you need to start
your own retirement planning today.