Warren Buffett, the most successful investor of our time, has often talked about his two rules of investing:
1) Don’t lose money.
2) Don’t forget rule No. 1.
On the surface, these rules seem basic, right?
Take a look at the table below. It shows the relationship between a loss in your portfolio and the required gain just to get back to even.
While this table clearly gets Mr. Buffett’s point across, I want to use the table to drive home an important point with what is going on in the stock market.
Most typical investors have there retirement savings in the stocks. The stock market, as measured by the Standard & Poors 500 Index lost 37.22% in 2008. So a typical investor with a $100,000 portfolio was sitting with $62,780 ($100,000 – 37,220) at the end of that year .
Based on the table above, the return needed just to get back him back to break-even is 59% ($37,200 / $62,780).
Since 2008, the S & P 500 has returned the following:
2009 – 27.11%
2010 – 14.87%
2011 – 2.05%
Total – 44.03%
So, at the beginning of 2008 this investor had a portfolio balance of $100,000 and 4 years later his current balance is $90,403…$10,000 LESS THAN HE STARTED WITH 4 YEARS AGO!
Do this seam like a good retirement plan?
Unfortunately typical investors have been brain washed into believing the stock market is the best retirement vehicle…it’s not. There are much better, less volatile, virtually risk-free ways grow your assets if you know where to find them.
Do Good and Make Money!