Wednesday, April 25, 2007

Watching your money is troublesome. I have a little money invested in mutual funds and I can call up the accounts online and see how they do each day. I've been watching the business channel on cable, CNBC and listening to the experts. They usually put on two experts at a time. The first one says the economy is going great and you should buy, buy, buy. The second one says the econmy is going to crash tomorrow, all the signs are there, and you should hide your money in a mattress. The next experts say housing is crashing or about to turn around--then, foreign markets are the way to go, or be careful in foreign markets. Perhaps people on the inside know which of the balanced reports is the true one. I love it when they spew out of paragraph of enlightenment and I realize that I have understood every word that was spoken but I have no idea what they are talking about. (I used to feel the same way around operaphiles when I was in music school. They'd say this or that singer was the one for this particular role and the person we heard was a dog. To my ear the singer I just heard did wonderfully well. So I must be stupid and they must know everything). The other talking heads all nod in cogent agreement with the speaker and the TV flashes on to the next thing.

Percentages can be confusing when looking at the market. If you have $100 and you lose 50%, then you have to make 100% on your money to get back to zero! If you lost 67%, you'd have to make 200% to get back to zero. So money lost in the early days of the Bush administration has been difficult to replace. It was about a six-year swing for me to get back to zero. During that time I had been hoping to double my nest egg, but instead, made nothing. When you lose a doubling of your money you might think it might not be that much, but in reality the doubling that you lose is the last doubling before you cash out, and you were hoping that would be huge. An example: $100 invested in the market, if the market makes its historic average of 12%, doubles every 5.5 years or so. $100 in 1970 becomes:

$200 in 1975.5

$400 in 1981

$800 in 1986.5

$1600 in 1992

$3200 in 1997.5

$6400 in 2003

$12,800 in 2008.5 and

$25,600 in 2014 when you retire.

But if you lose the doubling in the 2001-2006 years you come up with only

$12,800 and you are $12,800 short of where your expected to be. It's tricky business. The DOW Jones would have to have a 100% year instead of its usual 12% to help you. But don't worry. If you live 100 years or so, it should even out.

The DOW is over 13,000.

0 Comments:

Post a Comment

<< Home