What if you make it to your 80’s and realize that what you thought about investing in the stock market was all a mistake?
What if then you realize the losses are real and can’t be recovered?
That was the instance of a call I had this week with an 80+ year old.
He stated that he had had a nasty experience with the stock market, over many decades. He was tired and disgusted with the lack of earnings. It was only now after these many years of ups and downs in the market that he had begun to feel the devastating impact of his decisions to invest in the stock market.
If you’ve been exposed to the seismic activity in the stock market over these last two weeks, it’s been brutal.
You see, losing money has a highly significant impact on future gains.
More so than you might believe.
If your stock market portfolio loses 50%, you must have a 100% rate of return just to get back to even. You can’t just earn a 50% rate of return, the amount you lost, and assume you are back to even; it takes a full 100% rate of return to get back to even.
The numbers look like this:
- $500,000 minus 50% leaves you with $250,000.
- 50% of $250,000 is only $125,000.
- $250,000 + $125,000 only gets you to $375,000, not the original $500,000.
Again, losing money has a highly significant impact on future gains.
17,425 represents the closing number of the Dow Jones Industrial Average on December 31st, 2015. On January 22nd, 2016, a full three weeks later, the DOW closed at 16,093.
The first three weeks of this year’s DOW have lost nearly 8%. The low point over those first two weeks was a loss of 9.5%.
To put the full stock market losses into perspective for these three weeks, that’s around 2 trillion dollars, $2,000,000,000,000, plus or minus a few billion, but who’s counting?
That’s a lot of zeros.
Those zeros represent a lot of hard working people who have had an extreme eroding of their money.
What does it take to recover from an 8% loss?
- It means that you have to earn a 9% rate of return just to get back to even.
- If the DOW loses 10%, it will take a 12% rate of return just to get back to even.
The greater the loss, the higher the rate of return must be to get back to even!
As Warren Buffet has said, “Don’t lose money”. Those losses have a highly significant impact on the future growth of those dollars.
I wrote an article in June of 2015 titled, The Bull Market Fallacy.
I described the illusion of what the prior seven years of a “so-called” Bull Market had really brought to investors. That Bull Market in fact, was a fallacy. You can read that article HERE and see the results of the significant impact of losses on future gains.
Here we are in 2016.
It’s a new year.
It seems that every eight to ten years there has been a major crash or correction in the market.
It was in the year 2000 when the DOT.com bust started.
Eight years following, it was the real estate and credit crash of 2008.
Now in 2016, eight years later, we are experiencing seismic activity in the markets once again.
US stocks have been overvalued for two decades. One example is that there is actual money in the neighborhood of 6 trillion on the New York Stock Exchange, but it’s valued at 19 trillion. That’s over 200% more money on paper than actual money.
- Uncertainty in the stock market?
- What does the future hold?
- Who knows?
And that is the crux of the matter! No one knows! No one, period. No one can predict what the market will do. Not your financial planner, not Wall Street, not even Dave Ramsey, no one.
The uncomfortable question to ask then is this: How can you possibly plan your future with this type of volatile system?
You simply can’t!
Why are so many people taking these kinds of risks to expose themselves to the impactful losses?
Don’t lose money. Can you see why?
That’s the benefit of properly structured, high cash value whole life insurance.
- You don’t lose money.
- It is guaranteed to grow every single year.
- It doesn’t matter if the DOW is down or up.
- Whole life guarantees are unaffected by stock market volatility.
A bear market? A bull market? It doesn’t matter with whole life.