What is the Real Risk of Investing in the Stock Market?
(To Fully Understand this Market RISK explanation You Must Read all 4 Short Pages in Order.)
Please Note (1/23/2008): I hope the 30,000 visitors to my site since April 17, 2007 protected their portfolios from this Bear Market in stocks that is clearly showing itself here in January. This will continue for the next 6 to 18 months, in my opinion, and I expect additional declines from here of 15 to 30%. A small percentage of you purchased index annuities and have absolutely nothing to worry about. When your index resets over the 12 months, it will be resetting to a LOWER NEW starting point from which future interest will be earned.
If you are NEW to this website… I STRONGLY Recommend that you FULLY READ the Index Annuities Page, the Real Market Risk Page followed by the Articles-Annuities page. These pages will explain how index annuities work and why they are a long-term benefit to your portfolio. A SAFE Money Place with the potential for higher interest earnings than other Fixed Rate alternatives such as CD’s, Bonds etc. for accumulation/savings.
Please Note (8/17/2007): I published this series of pages for the 1st time in early May of 2007 and my Article called “Why Wealthy Investors Need to Explore other Wealth Protection Vehicles” on April 13th 2007. Those who Read and fully Understood the points I made about the “Real Risks” of Investing in the Stock Market and the Lack of Risk recognition / understanding I hope have taken action before this current “bear market” in Stocks started. I must stress that if you read and fully understand what I am saying here, you will never be put through this type of Stock Market experience again or the effect on your portfolio will be muted.
Let me start out by saying that everyone should have some Percentage of his or her portfolio directly invested in the Stock Market. The question is ... what Percentage? I'm afraid most have forgotten, yet again, the lessons learned in 2000, 2001 & 2002. It seems every 10 years or so, lessons learned are forgotten. Most People are disrespecting the REAL RISKS involved here, especially those age 50 and older who should begin to cut back to 50% or less, and at Age 60 cut back to 40% or less (Depending on your Risk Tolerance for how much less). For this Growing "SAFE Percentage" of the Portfolio there are attractive alternatives that should be utilized, and this is another attempt at explaining the Benefits of these Wonderful Alternatives.
Investing in the Stock Market means: Investing in Individual Stocks, Index Funds, Managed Mutual Funds, Exchange Traded Funds and Variable Annuities and Holding 5 Years, for this example.
Your Investment Advisor, Broker or Fee Based Advisor (CFP/Certified Financial Planner) always talks in Percentage Terms and NOT ACTUAL DOLLAR Terms.
Ever Wonder WHY?
Do you really understand what these Percentages mean?
Do you Really Understand the RISKS you take?
Questions:
If you start out with $100,000 fully invested in the Stock Market and for each of the next 5 years you had the following Returns (Assuming no Management Fees)(This whole Example is hypothetical to illustrate Real Market Risk - the RISK that most have already forgotten)(You should always think long-term to obtain the best performance and 10 Years should be the minimum):
Year 1: +10% ...UP
Year 2: +10% ...UP
Year 3: -(40%) ...DOWN
Year 4: +55% ...UP
Year 5: +10% ...UP
What do you think your Actual Account Value would be at the end of 5 Years?
What do you think the Annualized Return would be?
