Monday, September 21, 2009

Hurray, the Recession is Over! But Are Your Investments Recession-Proof?

Hurray, the Recession is Over! But Are Your Investments Recession-Proof

Roughly a year ago, a series of tumultuous events like the collapse of that financial giant, Lehman Brothers – well, maybe not so much – futher decimated the already weak economy, sending the stock market into an official “crash.” Of course, you know the story and are likely dealing with your own bitter memories and doing your best to look ahead.

On Tuesday, September 15, 2009, Federal Reserve Chairman Ben Bernanke, during an appearance at the Brookings Institution said that “from a technical standpoint, the recession is very likely over at this point.” For the purposes of this blog his assertion is, to be blunt, irrelevant. But since he’s the Chairman of the Federal Reserve, I am willing to say that technically he is correct. So, HURRAY!!

On a more serious note, I am still receiving phone calls and emails, and consulting with people who have lost in excess of 50 percent of their nest eggs and home equity, thanks to the recession. Those who are already in retirement or close to it probably feel they will be experiencing the recession for the foreseeable future, regardless of the growth in the Gross Domestic Product of the country as a whole, or what any economist, politician, or journalist may say or think.

If Your Investments Lost Value, You CAN’T Recover

The modest good news is that most investors look forward to making some gains to reshape their depressed portfolios – and it’s about time! Notice, though, that I said “make gains,” not “recover,” like almost everybody else on TV, radio, the Internet, or in the newspaper tends to put it. The plain truth is that regardless of how badly investors would like to “recover,” that will never happen. In investing, you can only GAIN or LOSE. Recovery is not an option – sorry!

Actually, this whole recovery idea is one of the most dangerous myths I see in personal finnancial planning. Let me try to explain my point with this example:

In 2008, the S&P 500 Index lost 38.5 percent. If it were an investment and you had $100,000 invested in it, you would have ended the year with $61,500 – meaning you would have lost $38,500. So far this year – as of September 16, 2009 – the S&P 500 index has gained about 15 percent. So the balance in your account is now up to $70,725, meaning you gained $9,225. My main point is really, really important for you to understand: Not a single dime of the $9,225, or 15 percent gain you've made so far in 2009, is a return of the $38,500 you lost in 2008. Although some – actually the majority – in the financial industry want you to somehow believe that it’s no big deal and you’ll make that money back, or “recover,” that’s just not the case.

Now, let’s compare and contrast that with the simple, proven, and time-tested investing strategy I teach. None of our clients – not a single one of them – lost even a penny in 2008. It’s the same year, in the same economy! In fact, most of them gained about 5 percent.

So, investing the same $100,000 from the previous example, my approach would have caused you to end 2008 with $105,000 – or a 5 percent gain. Not too bad in a "down" economy, is it, particularly when most investors were bleeding serious dollars. Here is the kicker – if the S&P 500 Index holds its current 15 percent gain through the end of this year, this $100,000 account – following my guidance – will earn $15,750 (15 percent of $105,000) for a total 2009 balance of $120,750.

You're smart, so you no doubt caught on that the account did not lose, but also that it picked up a 15 percent gain for 2009, in addition to the 5 percent gain last year.


Not only did you not lose, but those gains would have been added to your account's balance.

How long do you think it will take you, at the pace of your current strategy, to catch up and overtake investors following the strategy I teach? The truth is no one knows, including myself. But what I do know – FOR SURE – is that your retirement is certain and it's probably smart - no wait, forget probably, it’s simply smart NOT to gamble your retirement assets directly in the stock market.

Recessions will come and go. Isn't it in your best interest to pursue a recession-proof investment strategy?

For your chance to see first-hand how we're different, call us (301.949.4449) or visit our Web site to set up your free consultation today!

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