Reality check, the stock market averaged a .08% return from 2000 to 2009, that’s less than one percent return for a whole decade. In fact, here are the exact returns for the decade:
Let me put it another way. If you had $1,000,000.00 in the market in 2000 and you simply left it there to GROW in a retirement account that was diversified over the total market to protect you from lost, you would now have $960.521.97 after a decade.
Why would a smart person go to work everyday and store up capital in an account that even had the possibility of yielding small gain, no gains, or huge losses? I submit that smart people don’t know much about where they keep their long-term capital and they are simply too busy working to care until they either need the money or run out of money. By that time it is too late to correct.
Below are a couple of falsehoods many advisors sell their clients:
1. diversify spread your money across the entire market so you never have too much risk to any one sector of the economy. The chart above shows the .08% return after a decade. This is lesson number one in how to lose principal over ten years. Its complete Bulls**t. Its way too unpredictable and one thing is for sure and that’s if you live to retire you are going to need that money plus interest so hoping it works out is a bad plan.
2. Dollar cost averaging this is the strategy that says keep investing the same amount of money in the same shares month after month. When the market is up you get fewer shares for your money but when the market is down you get many more shares. don’t worry about the down market because when the market comes back you will have many more shares and you will have bought them cheaply. To this I say what about companies like BEAR STERNS AND LEHMAN BROTHERS that don’t ever comeback.
http://www.youtube.com/watch?v=gUkbdjetlY8 you have to watch the attached video.
If it goes down it can keep going down, period. dollar cost averaging is not a guarantee, do I need to refer you to the returns for the last ten years?
3. Not subtracting your contributions from your account to see if there were any actual returns This is smart peoples greatest offense. Many people where making much less income ten years ago. As their incomes increased so do their contributions to investment accounts. Most people watch the account balance go up month after month but fail to see the that with the up and down of the stock market their returns are being wiped out. Most if not all of the money in their accounts are contributions and not gains. When you put money in over ten years and only have that same money in the end, you don’t have an investment account, you have a piggy bank.
Four simple iron clad rules;
your money should grow if it is invested
-long term capital should grow at a fixed rate of return
-long term savings should not have market exposure
-always subtract your contributions from your account balance to judge the return on investment
Its time for a stronger financial education. On June 24 2010 my firm is sponsoring one of the top advisors in the country at a free educational forum and dinner. Please take advantage of the opportunity to learn and grow. Your family will thank you.
check out my page on facebook for event details. www.facebook.com/managerofwealth