Well! Hi everyone, this is Dan Thompson. Welcome to another wise money tools video. So we've been right in the thick of this virus, this Coronavirus scare over the last few weeks. And boy has this market taken quite a tumble on February 20th, literally just a month from today. So today's March 20th. So a month ago, the Dow kind of peaked out it was 29,000 and some change 29,300. And then just fast forward, you know, exactly almost 30 days, we're all the way down to 20,100 so about a 9000 point drop. And we have seen it worse it was actually had dropped even more so. Than that we were in the 19,000 even I think he got into the 18,000 so it was it got ugly fast. So to kind of put it in perspective, there's some different definitions in market cycles, a pullback is considered somewhere between a 5 to 9.9% drop. So if the market drops 5, 6, 7 percent, that's considered a pullback. Once the market hits 10%, that's considered a correction. So we hit correction territory, like within just a few days. Then a bear market is considered anytime a market drops 20% or more. And of course, we've hit that.


Now a recession, it's more or less a broader term, it's pretty much identified by two quarters of negative growth. Now, we're most likely gonna go into some sort of recession territory with this virus, slowing the economy or definitely down for this quarter. We'll just see how far this is gonna go. So we've pretty much dropped 30%, which obviously puts us into bear market territory. And we'll see if we get to quarters to see if that's gonna push us into recession territory. But what's happened is we've essentially wiped out five years of market growth. I mean, everything that everybody got in the last five years is pretty much gone. I remember doing a video, I think it was late last summer. And what I said was, there's a lot of people getting their statements, they're feeling really good about it. They're calculating how much money that they have. And I remember saying that they think it's their money. However, the only way it would actually be their money is if they were to sell out and protect their profits. Right.


Then I went on to say that most people are not gonna keep their profits. They're typically gonna ride the market down whenever that happens and lose a lot of their gains. So when people were looking at their statements late last summer, and feeling really good about how much money they had. You know, acquired over the last number of years, I remember thinking, Oh, man, these people think this is, you know, this is their money, so to speak. Well, who knew that this virus was right around the corner. And that, you know, in a surprising turn of events, literally five years of gain would be wiped out in less than about three weeks. However, the behavior is the same with every correction, every recession, every bear market, most people just ride it up and down. And it turns out to be more like a treadmill than an uphill climb. You know, when you look at Wall Street, it's really driven by two different forces. And those forces are greed and fear.


Well, we've certainly seen fear replace greed in the last few weeks. And as I've mentioned before, the stock market just wants predictability. Whenever there's uncertainty, fear is gonna set in. And for the most part, a pullback of 10% is fairly normal in, you know, in a year or twos period of time. There's always gonna be fluctuation and profit taking change in some economic situations. Those are normal business cycles. But let me emphasize again, that losses have a substantial negative impact on your money. You know, you're always hearing advisor saying, the market always recovers. You hear the radio guy say, the markets gonna recover? Well, of course it does. No one's gonna argue that, but what they neglect to tell you is how devastating the loss can be, because it's a loss of time. Let me give you an example. And I've used this before I just seem like I have to say this almost every week. But let's just use this proverbial 10% return that every advisor seems to throw out there. That if you stay in the market long enough that you're gonna average 10%. All right?


That means that your money is gonna double roughly every seven, seven and a half years rule using the rule of 72. Rule of 72 basically says if I divide 10% into 72, I should be doubling my money every 7.2 years. Now, that's not all that accurate, but it's pretty close. And as I've discussed before, in a working lifetime of a typical lifespan. We start working, you know, in our careers that roughly age 25 and we're gonna work till 65, 66, 67. So we're basically gonna have 6 compounding cycles. So let's look at it from a guy that 25 years old, he has $10,000 and he's gonna leave it alone until he's age 65. And again, we're gonna use 10% as our annual rate of return. So it's gonna look something like this, in the first cycle $10,000 to $20,000, 2nd cycle $20,000 to $40,000, then $40,000 to $80,000, $80,000 to $160,000. In the fifth cycle, we go from $160,000 to $320,000. And then the most important, the most critical cycle of all is cycle number six, which is $320,000 to $640,000. Reason why I say that's the most critical is because as you get into those last two cycles. Especially, they're really creating some powerful, some capital some net worth.


I mean, going from $320,000 to $640,000 is huge and can make a big difference in your retirement. So that's how the cycles work. Now, here's the problem with market cycles. Again, I think everyone will agree that the markets gonna recover always have and presumably always will. But at what cost to you see if you have six compounding cycles or basically 45 years for your money to grow? If we look at this chart, you can see what's happened in the past. And these are, this is going back to 1929. Now, we all know about the stock market crash at 29. Right? Well, it took from 1929 to 1959 for the market to quote-unquote recover. So if you had $1,000 in 1929, it took till almost 1959 to have your $1,000 back or to quote-unquote, recover. That is 4 lost compounding cycles. Now think about that. Losing four out of six compounding cycles in your lifetime. That means in the same 45 years that we're looking at, you only got to double twice.


So you went from 10,000 to 20,000, and then 20,000 to 40,000. And that was it. You missed out on the other four compounding cycles that really would have made a difference in your lifestyle. Now, after 1959, things went along pretty well. We had a pretty decent decade, and then we hit the 70s. And between oil embargoes, inflation, high interest rates, some of the worst economies and that we've had, there was another 3.5 last compounding cycles. So from the 1970s, through most of the 80s, it was just recovery time. And yes, the 80s were good years. But for those who had already saved and invested in the 70s, they were pretty much just recovery years. Now I started as a financial advisor in 1986. And back then, because the market had done so well from like, say 1980 on the Wall Street and the advisors were projecting 20% returns going forward. Because things were like I say they kind of were on fire, things were doing great.


Then after the 80s came, 90s did pretty good. And then we had the.com boom and bust and then y2k. And there we lost another 1.2 to 1.5, you know, compounding cycles. In fact, we call 2000 to 2010, the last decade, basically where there was no money made in the market. So you can see my point here, it's not that the markets won't recover. It's that you lose time, you lose compounding cycles and that is time that you can never get back. Now we've had a drop of 30% as my pointed out, painfully. What we don't know is how many months or years will it take for us to get back to 29,000 and some change. And the reason for that is because we don't know how long this virus gonna last and so on and so forth. We do have a pretty strong economy waiting to kind of get going again, so we might recover fairly quickly. But keep in mind that when a market drops 30% if it goes back up 30% that's not a full recovery.


Let me give an example. Let's say I have $1,000 and I lose 30%. That takes me down to $700. Right. Now, if I'm at 700, and the market goes up 30% I'm only at 910. So it actually requires just under 43% return to get back to my original thousand. So a 30% loss requires a 43% gain to get back to where we were. So now that we're down here, let's just say at 20,000 in the Dow. We need a 43% gain from this point to get back to where we were. So in that period of time that this recovery is happening, I not only lose out on compounding periods. But the markets have to do much better to get me back to where I was. Now, I love a strong economy. Like I was saying, I hope this recovers quickly. I don't want to see us go five or seven years just to get back to where we were. But what I really want to emphasize to you is a very simple principle. I call it the ABC principle. ABC stands for "Always Be Compounding". Don't miss out on compounding cycles and certainly not 3 or 4 cycles.


This is why way too many people end up broke or near broke during retirement. They just missed out on way too many cycles. And if you're within 1 to 2 cycles of retirement, basically 7 to 14 years, let's just say, you can't waste those. You need to do something different if you think that these cycles are gonna affect your future retirement. If you're completely relying on the market and you're 1 or 2 cycles away from retirement, you might need to be doing something different. You know, Einstein said it perfectly. You've heard it all before. It's the definition of insanity. And that's doing the same thing over and over and expecting a different result. Well, I've been doing this for 35 years, 36 years and sadly, everyone keeps doing the same thing over and over and hoping this time it's gonna work. You know, if your advisors been doing this for less than 10 years. He or she probably has no idea what it's like to have a market crash or to go through a cycle.


I mean, the last 10 years have been pretty good. They think this is just how markets work and that markets always go up. If this is their first time, they've had to deal with this, they're in somewhat of a panic mode. And all they can do is repeat the mantra. Markets are always gonna recover, you're gonna be just fine. They just forget to tell you, yeah, you might miss out on 1 or 2 compounding cycles. And that can be devastating. Unfortunately, I've been through way too many of these, which is why you need to never miss a compounding cycle. Again, ABC pretty simple. Always Be Compounding. You know, again, I hope this corrects quickly. I'm not a doom and gloomer, I like to grow money just like the next guy. However, we've had to develop a process that lets you compound keeps your money protected at the same time. Because I went through too many cycles and I don't want to do that ever again.


Well! That's it for this video. Feel free to reach out and ask any questions that you have. I'll try to answer them as quick as I can. If you'd like to schedule a time to chat, just click on the time trade link below. We'll schedule a time to have a few minutes, see what it's like in your situation. And see if you're in panic mode right now and what you could potentially do about it. Feel free to make a comment also below and don't forget to subscribe, never miss a video, never miss a podcast. And that's it. I will talk to you later. Take care.