Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Tuesday, April 19, 2011

Calculate Your Comeback

People like to compare financial magnitudes with their peaks. I caution against this because it generally serves no purpose except to make one feel badly. You'll know what I mean when you hit your 50s...anyways.

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!

4 comments:

  1. It's hard not to want your investments to stay at their peak value, but that's not the way markets work, especially those markets where you can get a price quote every second.

    ReplyDelete
  2. re: The Grouch Plus you never know when you're at the peak!

    ReplyDelete
  3. The same applies when you think you are doing very well!

    Nothing's real till you actually sell!

    As you suggest the best course of action would be to stay the course and not get swayed by the ups and downs.

    ReplyDelete
  4. re: I wish I had a dollar for every time I said those exact words to people.

    ReplyDelete