Guest Columnist: Ronit Rogoszinski
The title alone may cause some of you to flip the “screen” over to the next article so before you do, I will encourage you to stop, take a deep breath and read on as I promise you this will be the sort of math you will want to know.
In basic algebra when one adds for example a positive fifty (+50) with a negative fifty (-50), the outcome is simple – it’s zero (0). However, in the world of investments that does not add up as easily. If you’ve invested $100,000 in the market and you lose 50% (-50) your investment is now worth $50,000. If you gain 50% (+50) you’ll get back up to $75,000. To get back to zero sums ($100,000) your $50,000 will need to earn 100% ($50,000).
In reality from the highs of the market in October 2007 to the market lows of March 2009, the Standard and Poor’s 500 Index (S&P) fell nearly 57%. Since then, the same index has recovered dramatically rising almost 65% from the lows of March. However, even with this dramatic recovery it didn’t translate into a complete recovery in everyone’s portfolios. As in the example I’ve outlined above a 50% loss will only be offset with 100% gain. Based on this truth, the S&P 500 in order for it to return to the high of October 2007 will need to increase over 135%.
This concept is known as “the arithmetic of loss and recovery” and it highlights the importance of making down side protection the key when selecting investments. Take a look at your accounts and have a conversation with your advisor on how each position in your portfolio is correlated to the market. Like a great salad, a little of a few styles will best insure you against the dramatic swings in the market affecting your portfolio.
Ronit Rogoszinski has been helping individuals and professionals understand the world of finance and wise personal money management for over twenty years. The New York partner of Arch Financial Group, Ronit is a graduate of Queens College’s Scholars Program, holding FINRA Series 7 and 66 registrations through LPL Financial. As the proud mother of four children, Ronit understands firsthand the demands we all have in our fast paced lives. Yet her calm, personal and relaxed nature help to put her clients at ease while remaining focused on the job at hand – realizing and bringing them closer to their financial goals.
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