Showing posts with label short-term gains. Show all posts
Showing posts with label short-term gains. Show all posts

Friday 14 October 2011

Smart Investing: Don’t Lose Money!

We’ve all been told that in order to create wealth we must take risks and invest, invest, invest. Between stocks, bonds, mutual funds, 401(k)’s, IRA’s and so forth, people are feeling the pressure to invest because they have been taught that it’s the only way to wealth. The problem is many people are losing money. And, though some recover from losses (and some never do), losing money has a much greater negative impact on your wealth than gains do. Let me explain.
Impact of Losses vs. Gains
First, some basic math. I want to show you how losses hurt much more than gains help. Many people are under the impression that if they have a 20 percent loss one year and a 20 percent gain the next, then everything is okay and they’re back to their original investment. Unfortunately, this isn’t true.
Let’s say you invest $100,000. The first year, you lose 20 percent. You’re left with $80,000. The next year you make a 20 percent gain. How much do you have? Remember the “gain” must be calculated from the current value of $80,000, so a 20 percent gain on $80,000 would take your value up to $96,000. You’ve still lost money.
But what if you had a gain first and then a loss, would that make any difference? Let’s see: Again, you start with $100,000. Only, this time, you gains 20 percent off the bat. Now you have $120,000. The next year you lose 20 percent, leaving you with $96,000. There is no difference whether you gain first or lose first; the loss can happen at any point and will still have a greater impact than the gain.
Don’t Lose Money!
Remember the most important rule in
creating wealth, “don’t lose money.” 
In the end, no matter how you choose to invest your money, make informed decisions and look at all your opportunities.
Dan Thompson is a 25+ year financial expert and author of “Discovering Hidden Treasures.” He specializes in wealth creation and retirement planning.

Sunday 24 May 2009

The lure of short-term gains

The lure of short-term gains

There are many strategies employed in the market. During a given period, any strategy may give a negative return, despite having delivered good positive returns in the past or over the long term. The investor maybe tempted to change a proven strategy.

An investor changed from fundamental investing, to technical investing, to warrants investing, to options investing and to investing in U.S. equities. These techniques spoke loudly the resourcefulness of the investor, but the success must await an honest revelation of the total returns. This was certainly bewildering to those who are less savy. Yet, it was both interesting and intriguing to follow the investing adventure of this investor.

Sometimes, the lure of short-run gains, the attraction of a new paradigm, and the relentless pressure to keep pace with hot sectors and hot stocks caused some/many investors to abandon their long-term principles. The long-term moderate rate of return is too slow for many who tasted the spectacular gains made in the bull market.

However, by accepting a modest return of 7 or 8% per year (doubling wealth every 10 years), there are many stocks giving such a return with low or no risk. Patience must be exercised by long-term investors. Stocks remain the best investment for all those seeking steady, long-term gains.