drre@feddit.org 1 week ago
yes, generally it’s l/(1-l), where l is the loss (ranging from 0 to 1). Example: if you loose 10%, your portfolio needs to grow 11.11% to compensate just for the loss. go figure how long that is gonna take
correct me if I’m wrong here, but that 11%, to roll with your example, would need to be recovered immediately for that math. Like every month it doesn’t go back up… that’s compounding the lost opportunity. And if 2008 is anything to go by… it’s not just going to go back up, it’s going to take time.
like, if you expect a certain amount of growth, it’s unlikely you’ll get the 11% plus that “normal” growth back.
Over 30 years with the ups and downs it averages 10-12% a year. So while this year will probably be bad, next year or the year after will probably be exceptionally good.
That’s the problem with averages.
That’s not how the markets necessarily work. A bad year this year doesn’t necessarily mean an extra special year next year.
I guess the problem I’m pointing out is that it’s unlikely to fully regain the lost value fast enough to make up for the compound value that would have existed.
For people just starting out, it puts a significant cramp on their ability to gain capital. There may not be any better options, but it hurts people and in ways that won’t necessarily be made whole.
It has “returned to the mean” as far back as we can look. It doesn’t mean a special year, but as best we can see, it will eventually return to that mean.
It actually matters less to people just starting. At that point it’s more about the number of stocks you buy than the value of them. The value matters later when you have a ton and your contributions are tiny compared to the actual swings.
It is even worse if you are at the withdraw stage of life (generally retirement) because liquidated shares cannot participate in any later market increase.
You shouldn’t be invested that heavily in stocks at that age though.
Lots of people paying for that mistake today.
Does this take into account the rate at the time off the hit?
Cryophilia@lemmy.world 1 week ago
Historically, what, 4 years or so?
If you pulled all your money out in 2009 you were fucked. But by 2013 things were fine again.
fourpillarfreedom.com/heres-how-long-the-stock-ma…
FuglyDuck@lemmy.world 1 week ago
it kind of depends on what you did with that money. There is an opportunity cost there.
I used my 401k to start a company. so far that’s performing well above the market (and continuing to. It’s a second job so I’m reinvesting that with annual contribution caps, etc.)
Cryophilia@lemmy.world 1 week ago
The existence of exceptions does not invalidate a general rule.
compostgoblin@slrpnk.net 1 week ago
I’m glad that’s worked well for you! For the overwhelming majority, keeping their money in the 401k and continuing to make regular contributions, regardless of market volatility, is the wisest course of action.