Updated: Oct 15, 2020
Allow me to share with you some observations I've noticed in recent years:
"My investment advisor got me 22% last year."
"The market lost my gains last year, but my advisor is working to make that all back up."
"Since 2009, we've had record growth in the market."
So here's what *I* notice:
Gains are credited to the advisor's brilliance.
Yet the advisor doesn't (can't) take the blame for the market's losses.
Investors (and new advisors) seem to forget 2008... and begin looking at results from 2009 and forward so they have a better bragging story.
There's an element of financial amnesia at work here - a desire to only focus on the good things and ignore the bad that happened to you. Why? Well, you're not the only one, and everyone wants to share in the negative story with everyone else, right?
Let's look at the bragging rights story first.
If you had $100,000 invested... and the market went down -30%... how much do you have left? $70,000.
If your account went back up 30% from that $70,000... how much do you have now? $91,000 (a gain of $21,000 is 30% increase from $70,000).
How much of a gain would you need to get back to where you were? 43%
Study this graph from Crestmont Research. It illustrates the actual exponential returns you would need to get following a loss to get back to even.
Is that particular kind of "bragging rights" really that good now, if we actually look at the numbers?
In my opinion, REAL wealth building isn't about "bragging rights" - at least in regards to rate of return.
It's about a guaranteed outcome that you cannot get anywhere else.
If I could help you to increase the efficiency of your retirement income plan by a factor of FIVE... help you to spend 2-3 times as much income in retirement... without stock market risks... and all it really would cost you would be your old "bragging rights" story... would that be a conversation worth having?