When Time Is Not On Your Side

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    Times has certainly been on their side, but that's not true of all investors.
    Times has certainly been on their side, but that’s not true for all investors.

    Baby Boomers may recognize the old 1964 Rolling Stones’ song, “Time Is On My Side,” but when it comes to people who are approaching retirement, they should start humming another tune.

    That’s because with the huge losses in both home prices and in their equity portfolios, anyone approaching retirement should be trying to recoup their losses as fast as possible.  But the basic mathematics of finance is against that.  Here are two examples using the decline in home prices and losses in an S&P 500 portfolio which show that recouping losses is primarily a matter of time.

    If you paid $250,000 for a house and suffered a 20% loss, it would take you 15 years and two months to recover the loss.  If that loss was 30%, you need a little more than 19 years to get back to even (see chart below.)

    Aside from these losses, the other problem with housing is that there are so many houses on the market now, especially due foreclosures that the normal evolutionary real estate cycle of people becoming empty nesters or simply moving into bigger or smaller houses. All of this only adds to the inventory.  One economic consulting firm has estimated that there is over an eight-year backlog of housing stock in Florida.

    Years to Recovery

    Here something else which shows that time is not on your side: If you owned an S&P 500 index fund in 2008, that fund fell by 37.5%. To recoup this loss, it would take an investor over five years to recover this loss assuming the traditionally-accepted 9.4% historical rate of return in the S&P 500 Index with dividends re-invested.

    Similarly, the time to recover a loss in a home’s price can often be measured in decades.  This chart shows the duration of a few price recovery scenarios.

    Don't be fooled by the euphoria concerning the housing recovery.  As  this chart shows, it takes years for house prices to recover from a serious price decline.
    Don’t be fooled by the euphoria concerning the housing recovery. As this chart shows, it takes years for house prices to recover from a serious price decline.

    So that’s the one-two punch for the children of the Greatest Generation: significant losses in home prices and equity portfolios that only time can repair.

    Maybe this is what people meant when they said “time is money.”  But for too many people approaching retirement, time is often an option that many people don’t have.

     

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    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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