Making Back What You Lost In A Crash

Is it true that allowing your manager to leave your money invested, all the way down in a recession, will result in earning it all back in your life time, like some advisors suggest?  Look at this fact....

On March 10, 2000, the market crashed due to what is known as the “Tech Bubble Burst.”  After this crash in 2000, it took until July 17, 2015, for the market to make it back to its pre-crash levels. Did you catch how long that was? It took 15 years and 4 months to recover![1] 

That’s a long time, but does it mean investors would have finally made back what they lost in the crash? Not exactly.

The tech bust resulted in an over 70% move down.  A 70% move down requires a 233.3% move up to make the money back. Why? because you have so much less money to invest after the loss!  Let me show you…

Let’s pretend you have $100,000 when the market goes down, and as a result, you lose 70% of your $100,000. You would be left with only $30,000

Now let’s say the market goes back up to where it was and, as a result, you gain back 70%...but this time, it’s 70% of $30,000, which is only a $21,000 gain! 

You now have a total of $51,000 which, of course, is way less than $100,000. 

You see? This is just how the math works.  As sad as it is, most people think “you will make it back over time.”  For this to be true, the market may have to move twice as high as the old high!  That could take another 15 years, for a total of 30 years!  Do you have that long to wait?  So, if a financial advisor left your money in the market all the way down (which many do), is it possible to know how long it will take to make it all back using the old “buy and hold” system?  I don’t think so!  Wouldn’t it be better to know more and get prepared?

It’s time to start by attending a TRADEway class that can help you manage (or fire) your financial advisor and ensure your retirement funds are used for you!  I hope the class will help to keep this from EVER happening to you. If it happened already, I hope it will help you try and make up for lost time and money! Click here to find out when we're having a class in your area.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] A study of the Nasdaq chart done by David Mitchell, for TRADEway.