The Market Gives

John’s Story

John considered himself to be a conservative investor. He knew that he needed growth to stay ahead of inflation and to reach his overall financial goals for retirement. So, he realized the benefit of having a brokerage account.

On his broker’s advice, John invested $10,000.00 in the 2020 American Jubilee ETF.
At the end of the first of the year, the fund was down $3000.00 (30%) leaving $7000.00 of his original principal.

John asked the broker “What percentage return would I have to make on my remaining $7000.00 to recoup my lost $3000.00”?

The broker said “43% (.4286) ($7000.00 x1.43% =$10,000.10)”.

Considering the past 10 year Bull market, John asked the broker “How realistic is it to make 43% in a year given the current instability of the market”.

The broker said, “it would be difficult”. John asked, “What would be realistic”?

“Maybe 7% (1950-2009 claims 7% return including dividends; however past performance is no guarantee of future performance) without additional risk,” was the reply.

So with an annual 7% return, it would take approximately 6 years for John to recoup his lost $3000.00.
He asks the broker “During this time, would it be possible to see another market downturn during that six-year recovery period”?
“Possibly”, the broker said.

John asks “What about the potential lost interest opportunity on the $3000.00 loss”? There was no reply.

Then the broker said “Don’t make an emotional decision and get out of the market. It’s only a paper loss” (Really?).

“If you get out now, you’ll lose the $3000.00”! “Stay invested….the market always comes back”. (John was age 72 at the time of the loss.)

John had one last question, remembering that the brokerage firm advertised a return of fees if there were sustained losses.

John had one last question “ Besides the returned fees would you also return my lost $3000.00”?

You guess the answer.

Some advisor/brokers say that the only way you lose the money is if you sell the position: however, the moral of the story was John could have afforded the loss of principal BUT not the TIME necessary to recoup the loss, much less the lost interest.

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