Even if you get back to even and “earn” all of your losses from a previous dip in the market, investors should not be complacent with large losses in their retirement funds.
Buy-and-hold aficionados will argue that the strategy works, because even though the market falls, it eventually comes back. That philosophy is a fallacy since investors can easily lose half of their net worth, said Matthew Tuttle, CEO of Tuttle Tactical Management in Stamford, Conn.
Investors who had $1 million in the Nasdaq back in 2000 when it reached a high of 5,135 lost a large chunk of savings when it crashed in October 2002 at 1,108 during the dotcom bust. While the Nasdaq has reached the 5,000 level again, this means that all the investors who left their money in the tech-driven index are back to square one and only have $1 million.
“The problem is that you should have at least $2 million today,” Tuttle said. “The longer you take this strategy out, the more you could have had compared to what you actually have.”
It is nearly impossible for a portfolio to regain its severe losses and earn more in addition to the initial investment.
“You never can catch up to what your portfolio should have been,” Tuttle said. “The answer is to take a tactical approach that can get you most or all of the gains while avoiding most, if not all of the losses.”