Advisor Today magazine reports that a new survey by the Life Insurance Marketing Research Association (LIMRA) shows that only "16 percent of the consumers polled in the survey have taken any action with regard to their financial portfolios." The survey also revealed that more than two-thirds of the consumers ranked economic conditions in the U.S. as 'very unfavorable,' although an increasing number believe that conditions will improve within the next 12 months.
As a Wealth Strategist, I encounter many people who believe that "staying put" and waiting for the market to return is the safest strategy. While their caution is understandable, this belief is flawed in a couple of ways: first, reliably predicting how the market will perform is difficult, at best. Reliable industry statistics reveal that even the four and five star rated fund managers are able to only capture 52 to 63% of the upside of the market. If you missed the 10 best market days between 1984 and 2003 (the biggest bull market ever) the 10 percent market average over this period drops to 7.1 percent. Miss the twenty best days and the average drops to just 5.3 and miss the 20 best days and your return is only 1.8 percent.
Secondly, assuming a perfect investment strategy, historical models show that average market performance will require years of a "stay put" strategy for a portfolio to simply return to the position it was in prior to the most recent market melt down. But don't just take my word for it, here's a link to the New York Times "Comeback Calculator" that will help you estimate how long it will take your investment portfolio to recover its peak value.
So what's the average investor to do with what's left of their retirement funds? What if there was a way to earn a guaranteed 8% on your money plus a 10% bonus without ever risking your principal or your gains? Would you take advantage of that? More to the point, why would you not take advantage of that?
Try this exercise, use the "Comeback Calculator" to estimate the recovery time of your portfolio using the 3.16 percent compounded annual growth rate of the S&P 500 over the last 10 years (1.8% when you adjust for inflation), assuming that you will make no further contributions to the account. Now use the "Comeback Calculator" to determine your recovery time using an annual return of 8 percent. Using the stay put strategy and an initial $100,000 investment (which is now worth only $60,000), the calculator shows that the stay put strategy will not return you to the starting position anytime in the next thirty years. If you were to use a guaranteed 8% return strategy, it takes 11 years to return to your former position.
As startling as this is, the real impact is in the long run. In 15 years, the stay put strategy yields a total value of just over $61,000 while a guaranteed eight percent strategy yields a value of over $126,700. Could you use an extra $65,000 for your retirement? If the answer is, "No, I won't need the extra money," then just continue to use the stay put strategy.
To learn more about the Personal Protected Pension Plan and how your bonus can earn you a first year return of better than 18%, call me or watch the video on my How You Can Retire Wealthy web site. Here's to helping you uncover your Hidden Wealth!
