Paul Pent & Associates - Retirement Advice Blog

Financial Insight Blog

The True Cost of a Loss


Last week we talked about the importance of buildinig insurance into your retirement funds. The reason is to eliminate loss. We have reviewed many retirement accounts that gained 30-50% in 2009 and talked to brokers who are very proud of that fact. Unfortunately they are hiding something. They are hiding the previous years returns and sweaping them under the rug. Let's take a look and see why a 50% return isn't close to what most people think it is when preceeded by a year with a 30-50% loss. Here's the math: If you have $1000000 and incur a 50% loss like many in 2008, your account balance is $500,000. Now, you may think a 50% gain would be nice because it will take your account back to where it was before, but you'd be wrong.

$500,000 at 50% interest for 1 year will only bring your account back to $750,000. So a 50% loss followed by a 50% gain is a 25% loss. Ouch! It's best to just eliminate loss in your retirement account altogether. Call us at 1-877-797-7285 to see how you can take advantage of retirement accounts that do not participate in market risk.

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