Hillary clinton Was Right – At Least On This One By Dr. Tomas McFie
Hillary Clinton this week said that Americans have lost $100 Billion from their 401ks. And for once she wasn’t lying.
- “The Hillary clinton campaign explained to us how they calculated that $100 billion figure, and experts told us the reasoning was sound,” according to a fact-checking story by Politifact. “The campaign took (the) March figure for the total value of all 401(k) accounts, $4.8 trillion, and calculated any growth through June 23, the day before the (market retracing), and then the subsequent fall. They based the growth on changes in the U.S. stock market, as stocks account for about 66 percent of 401(k) assets, and fixed income, which accounts for 27 percent.”[i]
Now regardless if you are a Hillary foe or fan, the math on this one is absolutely correct. The reasoning as to why the retracing took place is an altogether different story than what Hillary and her campaign are spinning it to be which is what any politician will do to look important. However, her reasoning is wrong as to the why. We know this to be true because the market has since energetically rebounded rather than continuing its plunge.
The fact that the market has recovered is really insignificant to those who lost money. And that, my friend, should be your main focus and concern. Markets are capricious, unreliable and unforgiving. Some people have better luck than others and others have access to necessary insider information for consistent outperformance. But the typical American investor isn’t privy to that kind of knowledge or information. So the average American continues to lose money rather than make money in the market.
Point being, according to MarketWatch, American investors lost a massive 3.1% last year (2015) in their investment portfolios. The Northeast lost the least (-1.7%) and the Southeast lost the most (-3.82%.)[ii] And this is consistent with a recent Forbes analysis which documents that investors averaged only 2.6% net, annualized over the last 10-year period[iii]. Interestingly, what isn’t mentioned in this Forbes study is that over this same 10-year period, inflation insidiously stole 2.75%[iv]from the value of the US currency. This created a net loss of -0.15% rather than net gain of 2.6%.
Think about this for a moment:
- $5,000 saved annually earning a guaranteed 2.5% produces $56,017 after 10-years
- $2,500 invested annually earning an average rate of return of 5% nets you only $31,445 after the same 10-year period
But what happens to the $31,445 if you have a 20% market loss at the end of year 5 in that 10-year period?
- Minus 20% would leave you with $11,120 instead of $17,005 at the end of year 5
- This would reduce your 10-year net from $31,445 to $28,007 a -10.93% difference in net outcome because you never completely recover your losses!
Obviously, that is why it is insane and misleading to say that everything is peachy rosy because the market recovered. Nonsense!
Who cares about the market recovering its losses when it’s your losses that will make you suffer?
Until you discover how to protect yourself from the market, you will always lose more money than you need to lose. But when you understand that the first rule to creating wealth is NEVER LOSE MONEY you’ll be on the path that outperforms the average American investor day-in and day-out. And that is when you begin to keep more of the money you make.
About the author: Dr. Tomas McFie is the founder of Life Benefits (www.life-benefits.com) and author of multiple books including Retirement Curveball
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[i] http://www.newsmax.com/Finance/StreetTalk/Hillary-Clinton-Donald-Trump-Brexit-401k/2016/06/29/id/736314/
[ii] http://www.marketwatch.com/story/this-is-how-much-the-average-american-investor-made-last-year-2016-01-08
[iii] http://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/#601044c763a4
[iv] http://www.usinflationcalculator.com/inflation/current-inflation-rates/
