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.