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.)
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?
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?
New S&P 500 - Pt-tp-Pt, participation rates:
10 Year: 50%
7 Year: 48%
5 Year: 45%