EC The Bigger Losers Play To Not Lose

In my experience, the average guy’s thinking about the markets, inflation and volatility is completely upside down. It has resulted in irrational fears about the markets.

In the end, they are the reason he’ll never make any money.

Ironically, the most costly of these fears is the irrational fear of losing money.

I must have heard this crazy way of thinking a thousand times from new and potential clients when I was still working as a broker: “I just don’t want to lose any money.”

In my first meeting with new clients, seven out of 10 of them said exactly that. They essentially wanted to tread water with their money, thinking that would result in no losses.

Well, if you tread water for 20 years, a $1 million portfolio will lose at least 30% of its value… just to inflation.

You will have to grow that amount to $1.5 million just to stay even, which is what my clients instructed me to do.

And you can’t make $500,000 in 20 years by treading water or using the “keep what you have” thinking most people employ.

At the root of this no-loss thinking is the fact that most people are unable to distinguish between market fluctuations and established losses. That inability to see the distinction generates the irrational fear of losing money. They see any fluctuation as a negative and almost always sell – and always at a loss.

You cannot be in the market – bond or stock – if you do not understand that markets fluctuate… a lot. And only you can make that a loss by selling into that fluctuation.

That’s the part the average guy doesn’t get. Making money is about riding out the volatility and fluctuations – not selling into them.

Being unable to recognize the difference will eliminate any growth potential going forward. And in a retirement scenario, no growth is a formula for waking up broke in your 80s. (Read more on that topic here, here and here.)