Hi everyone, this is Dan Thompson with wise money tools. Welcome to this video we are in part two of compounding. Now if you didn't watch part one, I need you to go back and watch that because it's gonna make a lot more sense if you watch that first. Trying to keep these videos short because I want you to stay tuned and not go away because this is good stuff. So in our compounding discussion that went just a little bit longer, I wanted you to get some of this really good stuff because this is gonna dovetail into you being your best financial advisor. Now, most advisors won't tell you this and sadly, I don't know how many of them really get it either. Okay, so we know that compounding is the eighth wonder of the world and we talked about how How compounding can just be huge if we take advantage of it. Well, part of the compounding equation is time. Okay? We need time for money to percolate and to grow.


And this is where financial advisors fall off the rails, they put money at risk, and they typically throw it into mutual funds. And then everyone just crosses their fingers and hope it's gonna do well. What they don't consider is last time. Now what is last time, it actually equals just losses. So it's those years where you lose money, because you don't just lose money, you lose the time it takes to get back to where you work. Alright, so again, most advisors simply sit it out, they say take the hit, ride the roller coaster, and markets are always gonna rebound over time. So just sit there and be quiet. We know the market went down, we know you lost 20, 30, 40, 50%. But don't worry about it because it's all gonna come back, but they miss out on years of compounding. Now, you may have heard the comment that losses have a much greater impact on your wealth. Negative impact then gains do on the positive side. So what does that mean?


Well, let's go back to 2008. If you had your money in mutual funds, a 401k, or just about any stock or real estate investment. It was not uncommon to lose 40, 50, maybe even 100% of your money depending on where it was. Well, if you've lost 50% of your money in a mutual fund or the 401k, we affectionately called the 401k the 201K. And 2009 because people lost half their money. It took years in fact, it took a lot of people somewhere between 10 and 13 years just to recover to get back where they were in 2007. It's often referred to as the Lost Decade. And for many, that's a compounding period or two to get back to where they were. Remember in our last video, we talked about compounding periods, and at a 10% rate of return a compounding periods about 7 years. We don't get many of those in our lifetime. So when you miss out on two compounding periods, that can mean a lot of time wasted, that you're not compounding.


So in 2007, if you had $160,000 and we go back to our compounding table of the 31 compounding periods in our last video, that puts you right at about day 25 you have $160,000. Now over the next 10 years, had you kept on going You would be on day 26 or 27. Okay, somewhere between $330,000 to $600,000 you would have in your account, if you were able to keep on going. However, you lost 50% that took you back to day 24 then it took you 10 years to get back to your $160,000 or back to day 25. You see, time lost is a killer. Losses are a killer. So what we've got to do is find ways predictable ways to avoid those losses. Another way to look at it is this. If you have $100,000 and lose 50%, you now have $50,000 right? Well, the next year let's suppose the market came back and gained 50%. Well, how much do you have? You only have $75000. You see, if you lose 50%, your gains have to be 100% just to get back to where you were.


So everyone sat around and waited for a decade or more to get back on track to get back to where they were in 2007. So it's last time, and the time is needed for compounding. Suppose in 2008, you didn't make any money but you didn't lose any money. You had a flat year. And better yet it was a reset year for you. In other words, as soon as the market started moving up again, you were on board, you were moving up as well. You didn't have to wait for 100% return to start making money again. Let me say it like this. Suppose I have a stock that I bought today for $100 a share and it goes down 50%. Now it's trading at $50 a share. Right. At what point do I start making money again? You probably guessed it, I have to wait till it gets above 100 to start making money all the years or time it takes to get from 50 to 100 is just last time. Now suppose there was a way that when the market drops 50% I don't lose, it's just flat. It's a 0% return for me.


But then it's also a reset. So as the market moves up again, I do too. So if the market does gain back 50% over the next few years that it last. I get to grow with that 50% to think of it as like, you know, climbing stairs, I go up with the stairs, but in a bad year, I just stay on that stair while others are going backwards. Then when the market goes up again, I start climbing from the stair that I was on. Never having to go backwards or take losses. This way, I don't lose time, oh, maybe 1 or 2 years of standing on the same stair. But I never have to reclaim those stairs that where I was previously sometimes 2 or 3 compounding periods ago. So the message is this. Since we only get so many compounding periods in our lifetime, let's not waste them by simply retracing the past.


We don't want to write a market up and then take a beating on the way down and lose time in years, just getting back to where we were. Our time in our compounding way too important, too precious. Now I'm speaking from experience. I have lost a lot of money, investing, holding, hoping, not paying attention to warning signs, thinking well, things are gonna recover. I joke with my wife it if we had just not lost any money, and I'd gotten a measly 2 or 3% On the money that we lost, we have a lot more zeros in our finances. Well, I know that's not too funny. Sadly, it's true. We all make mistakes. What I try to do is help people not make the same mistakes. I can pretty much talk to anyone who's been investing for a while, and they probably have a similar story. Now I still invest. I try to make money work. Right now we build houses, but the difference is for the past 10 to 15 years. I also pull money off the table, get it working and growing and compounding where it's safe.I don't have any chance of losses.


So my point is in this video today is we've got a process and a program where you can compound and grow your money never suffer market loss and never lose time. Never lose that time that takes to recover or to reclaim those stairs again, growth time and no losses are the key to taking advantage of those few compounding periods we get in our lifetimes. So if we fast forward your compounding schedule by getting as much money as you can in there for as long as you can. You're gonna to be surprised what it can do for you in regards to future income, and a lifetime of peace of mind.


All right, that's a lot to take in as good video. Hope you enjoyed it. If you have any questions, shoot him the questions at wise money tools.com. Don't forget to subscribe. And again, if you ever want to have a conversation, click on the time trade link. We'll have a little strategy session and see how things might fit in your situation. That's about it. Look forward to talk to you next time. These are the five key elements to wealth. And I hope you enjoyed it. Talk to you later. Take care.