Clear Fog Blog

Political musings from Warren E. Peterson

Economic Recovery, Part I – You

Posted by Warren Peterson on November 30, 2008

Had it with the stock market, bond market, real estate market; consider these “ifs.” If your investment portfolio has lost 40% of its value in the current crash, how long will it take to recover?

If you put your remaining capital in a nice, safe CD or government bond at 3%, you’ll be whole again in about 17.5 years – less inflation of course, which means you will never recover.

If you find something that earns 9%, you’ll be good in only 6 years. Make that 9 years assuming 3% inflation per year.

If the stock market recovers to pre crash levels, happy days will be here again in just under 3 years assuming 20% growth per year. Hey! It’s happened before.

It’s all a matter of tolerance for risk and ulcers.

To calculate the numbers for your investments, use the following, admittedly overly simplistic, formula:

A (pre crash investment} minus B (loss) = C (post crash investment)

C times 1.XX times 1.XX times … = Approximately A where XX = percent (.20 = 20%)

Example: 100 minus 40 = 60

60 times 1.2 = 72 times 1.2 = 86.4 times 1.2 = 103.7 = 103.7 or just under 3 years.

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One Response to “Economic Recovery, Part I – You”

  1. Fred Churchill said

    From all that I’ve read to date, we may not hit bottom in this recession for another year, and the first positive multiplier may not show it’s face until well into 2010. And then what? Will it take another bubble (green energy?)to see the DOW at 13K by 2013? The next four years will be critical, so I hope Obama gets it right the first time.

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