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The Real Facts about Market Risk

My calculations show the returns on all investment accounts average an annual 3.8 percent rate. I read many investment account brochures and study the associated graphs, which show returns at 11.9 percent.  But personal interviews with my clients always indicates that the more accurate rate of return is around 3.8 percent (or to make it easy we’ll just round up to 4 percent), nothing close to the 11.9 percent advertised.  If you need more proof than this, I beg you to do your own calculations, and make sure you take those calculations over a long period of time, not just the last five years.  If you conclude that your rate of return is close to mine, a simple 4 percent, then lock down the investments that are earning you this return so you are getting a nice steady (but low) profit. I now want to use this rate to make a gigantic point.
Since we can assume a low but steady 4 percent overall rate of return, why would you allow the risk of losing a much, much larger amount of money if the market changes dramatically in a few months?  In other words, 4 percent is all you will ever “average” so why would you leave your money at risk of losing so much more (like in 2008 where many people lost as much as 43 percent) just to end up with what we have established is what you’ll get over time (say 30 years) of 4 percent? You know you will never average more than about 4 percent, so again, why risk a much greater loss, only to end up with 4 percent average in the end?  I am asking this question over and over again because people just don’t seem to get this at all.
Timing seems to be everything when it comes to market risk.  If the timing goes against you just before you retire, you will be forced to wait a long time before taking out money to live on.  And with less money, if you start taking this money as planned, you will run out a lot quicker.  In my experience, you must avoid market risk when you arrive at age 55, or when you are within ten years of retiring.  Do your own research and find out how long it takes for the market to return to where it was before a big drop.  Judge for yourself when to move money to avoid market risk.  In case you didn’t know it, you are in charge.  The HR person is not, nor is your employer in charge of your retirement.  Nobody else cares as much about your money as you do.
If you are not going to be satisfied with just 4 percent then you have two choices:
1)  You can spend countless hours learning how to play the market and become and expert investor and take on huge risks in an attempt to make more than just 4 percent
2) You can save lots of time and money and learn more secure ways to invest your money other than just in a 401(k) or IRA, such as real estate, equipment leasing, etc.
I urge you to learn more about Money Mastery Principle 10: “Money in motion creates more money,” and the secrets of the great money masters in maximizing their resources and learning how to get their money to do more for them than just sit in a tax-deferred government retirement program.

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