NEVER LOSE MONEY
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The Power of Never Losing Money
We are hard-wired to seek security as human beings. As we get older, that need for security continues to grow. How do you achieve financial security in retirement? Not only does your retirement nest egg have to be large enough to support the income you need after you stop working, it must also be protected from market losses. If your investment portfolio lacks the element of safety, your nest egg will be at risk.
How can you keep your money safe? Many experts say to diversify. Is your money safe if it’s diversified? In 2008, we learned the answer to that question is NO. Every major asset class went down at the same time during that financial crisis. Some went down more than fifty percent. People that had a well-diversified portfolio in 2008 likely lost about half (or more) of their retirement money. For many families, it was financially devastating.
LESSON: DIVERSIFICATION DOES NOT EQUAL SAFETY.
It is good to be diversified, it’s not a bad strategy. However, it does not mean your investment portfolio and retirement money will be safe or protected from market volatility.
When the dot-com bubble burst in 2000, and then was immediately followed by 9/11, the market was down for 3 years in a row. It took 6-7 years to recover from those losses. Then we got hit again by a stock market collapse. Investors that started taking 7% income in the year 2000, if they didn’t adjust their spending . . . WENT BROKE BY THE END OF 2008! Don’t let this happen to you.
It is important to learn from the mistakes of others so we don’t repeat them.
If the market goes down 50%, and it comes back up 50%, most people believe you’ve made all your money back. That is FALSE. How much does it have to come back up for you to get even? It must come back up 100% to get back to where you started. Mathematically, you would have to double your money just to recover the losses. The question becomes, do you have enough time to recover if you lose money due to the stock market? Most people in or near retirement do not.
If you’re a 25- to 30-year-old investor, you probably have time to wait it out because you may not need that money for 40 years. We know the overall trend of our stock market is up over a long period of time, so it might be worth the risk. However, if you are a 50- to 65-year-old investor, do you have time to wait? That’s the difference between a 25-year-old investor and a 55-year-old investor . . . time to recover. Do you have time to recover?
Warren Buffett, CEO of Berkshire Hathaway and one of the wealthiest people in the world, states the number one rule for investing is never lose money. The second rule: Never forget rule number one.
The first secret to financial security is: Safety – Never Lose Money.
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