Once I met with a distraught potential client and she ( a psychologist no less), explained to me, in early 2009, as tears practically welled up in her eyes, that her portfolio had been $1.2 million and now it was down to $850,000. I responded, in a commiserating way, that it must be difficult to have put in a million dollars and see it drop like that. She straightened out and responded that she had not put in a million dollars. She let me know that she kept close track of how much she put in and that it was $600,000 ish (she knew the exact number - I'm rounding here because the exact number escapes me).
Whenever I see someone talking about how much their portfolio was worth at its peak I think of this lady.
Anyway, I came across a neat calculator for figuring out how to calculate how long it will take to get back to the peak value given certain assumptions at "Calculate Your Financial Comeback".
|Source: New York Times|
CLICK TO ENLARGE Just put in your numbers, slide the slider to your expected return and hit the "calculate" button. The result will be the number of years and a graph showing the growth of your portfolio.
The portfolio simplistically assumes that the assumed rate of return is achieved each year (AND WE KNOW THAT WON'T HAPPEN!) so the results have to be taken with a grain of salt. As we know whenever you are putting money in (building up the nest egg) or taking it out (drawing down the nest egg) the sequence of returns is important .
As it happens many people who kept on course and contributed regularly to take advantage of dollar cost averaging have exceeded or are close to their peak value.
Now if can just stop comparing the value of our house to what it was worth in 2006!