Like many of you, I have been watching, listening, and reading everyday about the mess our economy is in. One week the Dow sets an all time loss record, and then a few days later it has its biggest day ever. The stock market is like a roller coaster, but no one is having any fun. The latest joke is that your 401K is now a 201K.
It seems every "expert" has a different opinion on what we should do. One will say you should sell, while another will make the argument that now is the time to buy. And, you always hear "it's only a paper loss."
A few years back, the stock market went through a downturn in which many people saw their 401K's, and investment portfolios lose 40%, 50%, or more.
You might recall, in 2000, 2001, and 2002 the S & P Stock Index saw losses each year. It's the only time in history that the S & P had three consecutive years of negative numbers. Now, here we are six short years later, and the market is in as bad a situation as we've had since the great depression. So, if you were one of the fortunate people who had just about recovered from your losses of '00, '01, and '02, it's more than likely that '08 will wipe out all your gains from '03 to '07.
Has your portfolio increased in value since 1999? Did you have to postpone retirement, return to work, or sell your home to weather this storm? Are you growing tired of hearing that statistically, over the long run, if you stay in the market you will make money? What if your portfolio experienced a 30% loss this year? If you started at $100,000, you're now down to $70,000. How much of a return do you need just to get back to your original $100,000? Some people will quickly answer 30%, but 30% added to $70,000 is only $91,000. You will need an approximate 43% gain to recover the 30% loss. Would you be got a 10% per year, you would need almost 4 years just to get back to your starting point. Then, when will the next downturn take place?
Many people have grown tired of the ups and downs. This has caused many investors to seek the stability that other fixed interest products can offer. What I am referring to is an annuity. But, not the type of annuity your parents had that just paid them an income.
Let's compare an annuity that earns a guaranteed 4.8% per year for 5 years and a mutual fund that earns 10% the first 3 years, loses 15% in year 4 and then earns 10% again in year 5.
Annuity Year Mutual Fund
104,800 4.8% 1 110,000 10%
109,930 4.8% 2 121,000 10%
115,102 4.8% 3 133,100 10%
120,627 4.8% 4 113,135 (15%)
126,417 4.8% 5 124,449 10%
The Starting point is $100,000
Remember the story of the tortoise and the hare? The moral of the story: "Slow and steady wins the race."
Author Resource:-
Income recovery and asset protection specialist. I re-design portfolios so you can increase your monthly income, never run out of money during retirement, never lose any money and, make certain you significantly reduce your taxes. For More Info:www.PepperdineCPA.com
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