If you are like a lot of investors you lost 50% of the market value of your assets due to the market meltdown that occurred in late 2007 and 2008 – the Dow dropped more than 7,000 points.
That is very bad news. Even worse news is the number of years it will take to recover those losses. Do the math. You have one dollar and its value drops to fifty cents. You are down 50%. However, you need a 100% rate of return to grow fifty cents back to the original dollar. Your assets have to double from their depressed values.
Unfortunately, that is not all of the bad news. You really need more than 100% to fully recover.
Let’s assume the securities markets average a 20% per year return, which would be exceptional performance over a long period of time. Allowing for some compounding, you should have your dollar back in 4.5 years.
Or, maybe not! You also have to recover 4.5 years of investment expenses which could another 10% or more to your recovery amount. Plus, you need additional return to offset the impact of five years of inflation that reduces the purchasing power of your assets, in particular retirement assets.
You may need a 120% gain to offset a 50% loss.
Your best strategy for reducing future losses and speeding up recovery periods is to make sure your advisor is competent and ethical and he/she provides sophisticated investment services that manage risk as well as pursue performance.