I found a really cool calculator on the web the other day. I know what you’re thinking – a calculator can be cool?
Indulge me for a moment. This calculator reveals what the S&P 500 returned over any period of years going as far back as 1871.
And from then until the end of 2013, the S&P 500 grew at 9.07% – compounded.
In other words, had we “hired” the market to grow our money over those 142 years, the market would have given us a compound growth rate of 9.07%.
Most of us would take that deal without much hesitation, but more than 20% of those years produced a loss. If we have the chronological misfortune of being born in the wrong 30-50 investing lifetime, that 9.07% could turn out to be wishful thinking – not a time-tested certainty.
Remarkably, if we take those losing years out and turn them into zero years (no gain, no loss) – the 9.07% figure leaps all the way up to 13.27%. That means that while $100,000 would grow to $3,222,645 at 9.07% over 40 years; it would grow to $14,607,177 at 13.27% over the same period – nearly 5X as much money.
Now we’re talking! But is such a thing possible? Sort of.
We can “hire” the market on terms that eliminate losses if we give up a portion of the gains in the really big years. For most people that’s an easy tradeoff. Not only is eliminating all losses much more important than capturing all gains mathematically; it removes chronological luck from the equation; and lets us sleep a lot better knowing we can never lose money to fickle markets.
Ping me back to learn how you can eliminate losses from your investments.
