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Can You Correct a Tailspin
Written by Steve | Published: |
A friend of mine that I used to work out with once told me about some of his military training as a helicopter pilot.
At first he said it was very difficult. Even just trying to hover over a target the size of a football field with their high powered helicopters was a challenge.
As he continued with his training the situations would become much more difficult. At one point they pushed the helicopter into almost a full tailspin and then had his training officers yelling at the top of their lungs trying to distract him just to see if he could correct it while under extreme stress and disorientation.
Sounds intense right?
If you have watched the market lately, I wouldn’t say they are in a tailspin but they are definitely retracting and causing some real stress for some folks.
It’s never fun to lose money in the market.
…but it always comes back right?
…and if you don’t sell then the losses don’t count right?
I think this is what you tell yourself so you don’t seem crazy.
This chart shows a simple way to understand how losses and recoveries work together.
So let’s keep this simple.
If you have $100,000 in an account and the market goes down by 20% that year what is your ending balance… $80,000.
Ok, so that stinks… now what do you have to earn to get back to flush?
If the market goes back up 20% you should be good right?
Wrong…
Now if the market goes up by 20% times your $80,000 your account value is at $96,000…
What???
You actually need to earn 25% at $80,000 the next year just to get back to your original $100,000.
And…let’s not even talk about the 2 years of lost opportunity.
This can get quite frustrating and dangerous for some folks.
So what can you do to avoid this wall street whiplash?
There are several strategies that we use to help our clients meet their financial goals without being subjected to this rollercoaster.
Not sure if it’s a fit for you but we are happy to help.
Just reply to this email and we will get a call scheduled for you.