The Thing about Losing Money….

Let’s face it – we’re not sooth-sayers and neither are our financial advisors.  So from time to time – a market or an investment is going to stick us with a loss.  No big deal.  Get back on the up elevator and it will soon be a distant memory. But the truth is, losses leave permanent scars. 

Here’s a simple example to make the point. 

 

This table shows what happens when a 25 year-old invests $10,000 at 7.2% (since at 7.2% money doubles every 10 years). 

Sure enough, in the uninterrupted column, $10,000 becomes $20,000 in ten years; and continues to double again every 10 years thereafter until age 85, at which point it has swelled all the way to $641,354.

But when we introduce a small, 5% loss in Year 3, our account shrinks by $536.   No problem – we get it back on the 7.2% growth train, recover the loss, and move on. 

But that $536 went into someone else’s pocket, and will never find its way back to ours.  It’s gone forever.  And because it’s gone forever, it leaves a permanent scar.  By age 85, that $536 loss means we end up $72,990 less than we would have had by avoiding the loss in the first place.   That’s not just a scar, it’s complete financial disfiguration. 

Imagine if – over the course of an investing lifetime, you lost $536 ten times.  The cumulative effect of what may have seemed like small, insignificant setbacks at the time, could reduce your net worth and your lifestyle by more than a half million dollars.

Get serious about eliminating investing losses.  It is completely possible – you just have to find an advisor committed to that end.