Market Losses are Tough to Recover
“Rule #1 Never Lose Money. Rule #2 Never Forget Rule #1.” – Warren Buffett
Since 2000 the S&P 500® has had two years of declines greater than 20%[1]. In fact going back to 1900, history suggests we can expect a market “correction” (decline) of at least 10% once every 3 or 4 years. History also suggests the market is nearly impossible to consistently time[2].
Market losses aren’t easy to recover. Consider a 40% decline requires a 67% increase just to get back to even. A 40% increase following 40% decrease just is still down 16%.
Start = 100
Down 40% (year 1)
End = 60
Up 66.6% (year 2)
End = 100 or (net, “even”)
Start = 100
Down 40% (year 1)
End = 60
Up 40% (year 2)
End = 84 or (net, down 16%)
Unfortunately many market corrections occur at inopportune times. If you didn’t need to access your money you could have recovered your losses from 2008. Many people however didn’t have that luxury. Even if they could have “stayed in the market” many did not out of fear. Legendary investor Warren Buffet[3] famously got wealthier following his own sage advice, “Be greedy when others are fearful.” That, and remember Rule #1!
Tired of market losses? An indexed strategy inside of an IUL policy or a FIA might be worth considering.
[1] 2002, -23.37%; 2008, -38.49%,
[2] AmericanFunds.com website “What past market declines can teach us”
[3] http://www.goodreads.com/author/quotes/756.Warren_Buffett is a compilation of Warren Buffett quotes and a good starting point for anyone interested in learning from the wisdom of the legendary investor
