Why compound losses and simple gains are stagnating the financial growth potential for people preparing for or who have reached their retirement—and the answer.
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If you’re over fifty, you probably remember the 90s where real estate prices exploded; the DOW and S&P were up over 300%1 and the NASDAQ over 700%1. Unfortunately over the next 12 years we all know what happened: the real estate crash, the economic recession, un-employment, national debt, financial crises, and the resulting erosion of so many families’ retirement accounts.
When I meet with clients one of the first questions they ask me is why their retirement accounts are worth less today than they were in 2000. My answer is that in an environment like the last 12 years a mathematical phenomenon called compound losses and simple gains makes it almost impossible for a family to ever recover.
Here’s how compound losses and simple gains work. If you have $100,000 and you experience a 30% loss, you now have $70,000. In order to get back your original $100,000, you now only have $70,000 to work with. That means you need a 42% return to get back to your starting investment (42% x $70,000 = $30,000 + $70,000 = $100,000). Wow! How many times do you need to experience compound losses and simple gains to wonder if you will ever get back your $100,000?
I promised you an answer.
What if there was a company that would give you an immediate 7% return just to do business with them? And they had a product in which you were guaranteed never to have any negative returns—no compound losses and simple gains to worry about ever again. Now let’s say this product returned a meager 3% compound return from 2000 thru 2011? What would that mean? It would mean that your $100,000 would have grown to $148,113; a 4% compound return would mean $164,721 and a compound 5% return would mean $183,006. The potential to return even greater than 5% is also there. What if you could also defer having to pay taxes on your gains and you still can maintain control of your money?
If I have sparked some interest then I suggest you get in touch with your retirement specialist and ask them about fixed index annuities. I also suggest you find a retirement specialist who is a general agent who is not beholding to just one company and does not suggest any products that could lose your money and subject you to compound losses and simple gains.
How much do you make if you don’t lose?
In the above hypothetical illustration, somewhere between $48,113 and $83, 006 or potentially even more! And, you slept every night without ever having to worry again.
Dave Thompson is a retirement planner who is licensed in Kansas and Missouri. He has been the host of the “It’s Your Money” radio show on KFEQ 680AM for 6 years. Helping clients secure a retirement income they can never outlive, Dave specializes in long-term care, annuities, and safe retirement solutions. Contact Dave at (800) 224-6545.
1 Yahoo Finance