Are you familiar with the Rule of 72? It’s easy. Divide 72 by your expected return, and that’s how many years it will take for your money to double. It’s a quick way to understand the power of compound interest.
If investors focused more on the power of compounding and less on prices, they may be better long-term investors and perhaps richer. Why? They might be able to avoid some of the heartache investors usually learn only too late about the devastation of losses.
Losing money is devastating not only to a portfolio but to your health. Believe me, I’ve seen what losing money does to investors, and it’s not child’s play. It’s real, and it hurts.
When you consider that if you lose 50% of your investment you need to earn a 100% return just to get back to even, you begin to see the pain. Study the arithmetic of losses below and understand your risk tolerance. Too often investors realize their intolerance for risk, like a food allergy, is not what they thought it was. And it’s after the fact. Don’t let that be you.
What’s most devastating about investment losses is that money, oftentimes, is gone. It’s not coming back. This means investors need to make a second investment just to get back to where they were. It’s a two-for-the-price-of-one no one wants to experience. The emotional strain alone of getting back to even is no way to spend your retirement life.
On top of that, you no longer have the comfort of a paycheck, or you’re forced to go back to work to make it all back. That isn’t what you had in mind when you started this endeavor.
Action Line: Keep what you make by saving ‘til it hurts. Then, invest with the peace of mind and confidence you deserve. When you’re ready to talk, let’s talk, but only if you’re serious. Email me at ejsmith@yoursurvivalguy.com to join the queue.
