Despite popular belief, you need NOT accept market risk.
Last week I shared that Meta would need to double two times over (grow 300%) to recover from its 75% loss in 2022.
I have been thinking a lot about how to better convey the sheer tragedy of this fact.
Imagine that you are two years to retirement. You’re only two years away from “hanging it up”… “living the good life”. You have $2M in savings and are feeling pretty good.
Then, over the next six months, your investments drops to $500K (75% loss).
How would you feel?
I know how I would. Lots of tears. And then back to work.
Thankfully, you’re not dumb enough to put $2M of retirement savings in Facebook stock alone. (Neither am I.)
Severe losses, though, aren’t limited to individual stocks!
Let’s take a look back at some inopportune years to retire:
2008: The Subprime Mortgage Crisis S&P 500 loss: 57% Time to recover: 17 months
2000: The Dotcom Bubble Nasdaq loss: 77% Time to recover: 15 years
1973: The Oil Crisis and Economic Recession Market loss: 48% Time to recover: 21 months
1929: The Worst Crash in History Dow loss: 89% Time to recover: 25 years.
Entire markets can drop 50%+. And the road to recovery can vary: from 17 months (when the Fed gets involved) to 25 years (when it does not).
Significant market drops are normal.
But accepting market risk is not required.
Fast Follow investors cut our losses. In doing so, we manage market risk.
Take control and never utter “It’s bad timing, I guess. I’m heading back to work."
I hope that you’ve enjoyed my short series on minimizing loss.
In summary:
*Entire markets can drop by 50% or more, setting you way back.
*Investment losses are asymmetric and compound exponentially. Losses take a long time to dig out from.
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