Shattering the Myth of Stock Market “Recovery”

From time to time, when investors whose nest eggs are invested in the stock market experience decreases in the value of their portfolios – by virtue of market drops -, many in the financial industry invoke the myth that investors needn’t fret because the market (and their investment portfolios) will recover from those “temporary” dips. While majority of news outlets and even some financial advisors position it in that manner, I beg to differ because that is just not the case.

The absolute, indisputable financial fact is that from the perspective of a retirement investor (that’s YOU) no variable investment portfolio works that way – absolutely NONE! The fact is, only two possibilities exist when it comes to how variable investment portfolios work, and “recover” is not one of them. They either “gain” or “lose.” What’s more, once you lose, you can never (as in, it is 100 percent impossible) gain back what you’ve lost – Ever! Once that money is gone, it’s gone.

However elementary this may sound no investor has ever received his or her investment statement and seen the word “gain” replaced with “recovery.” You are smart, so you understand that such wordplay could create an illusion and prevent further probing. I must admit though that invoking the word “recovery” is an excellent way to calm frayed investors’ nerves.

This illusion has led many investors to the erroneous understanding that it would take the same percentage gain for a portfolio to “breakeven or gain back what it lost” after a given loss. For example most Americans expect that a 15 percent loss of value would be fully “recovered” by an equal 15 percent gain but that’s again not how things work in reality.

Let’s consider a $1,000 investment portfolio: If it experiences a 15 percent loss, the new value would be $850 ($1,000 minus the 15 percent or $150 loss). An equal 15 percent gain on the now $850 balance would be $127.50 which will increase the portfolio’s value (by 15 percent) to $997.50. So, minus 15 percent followed by a 15 percent gain is less than the initial $1,000. To return to that prior $1,000 would require a gain of $150 on the $850 which is 18 percent. In the same vain a 20 percent loss would require a 25 percent gain to breakeven, a 12 percent loss needs a 14 percent gain, and a 50 percent loss demands a 100 percent gain to gain back everything it lost.

So you see, generally speaking, with all other things equal it would take a much bigger gain after your portfolio loses to gain back what you’ve lost. As a retirement (or retired) investor shouldn’t your focus be on making reliable consistent gains as opposed to taking dips here and there and then trying to “recover” from those loses – if there’s any such thing? Let’s face it, aren’t you saving to get ahead?

Did you know that there’s a proven, time-tested investing strategy that allows certain investors just like you to tie the appreciation of their nest eggs to a stock market index up to a certain cap and be able to lock-in all of their gains from year to year so that they never lose a penny whenever the market dips? Yes, absolutely nothing!  Think about this very carefully: Could you afford to leave the certainty of your retirement livelihood at the whim of the stock market?

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Samuel N. Asare, is the senior strategist at Laser Financial Group, and a noted retirement-income planning expert. His straight-forward and superb ability to simplify often-complex strategies has made him a regularly featured expert in various print, radio, and television media. Samuel is the celebrated author of several personal finance books and the acclaimed Proven , Common-Sense Wealth Building blog.  His firm trains financial professionals on a variety of retirement-related subjects, and he regularly speaks to investors about how to retire successfully. Afrikan Goddess readers may schedule a complimentary, no-obligation consultation with Samuel by calling 877.656.9111 or visiting LaserFG.com.

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Samuel Asare MBA, CRPC, CMFC, CTP

Samuel Asare MBA, CRPC, CMFC, CTP

Samuel N. Asare is the senior strategist at Laser Financial Group, a regular columnist/commentator for various national and regional publications, author of Proven , Common-Sense Wealth Building blog, and four personal finance books. He holds an MBA and is a Chartered Retirement Planning Counselor, a Charted Mutual Fund Counselor, a Certified Treasury Professional, and a Certified Business Manager. To get more straight-forward retirement insights, visit LaserFG.com, or connect at facebook.com/LaserFG.

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