This is a true story from a new client that describes almost everyone reading this today.
“John, I just got back to even this year on my retirement account after being down for about 8 years.”
Does this sound familiar?
I asked this client if he had ever heard about a reset and he said “no”. If he understood a reset he would have never been in the tough situation of waiting for money to rebound to long forgotten high values.
You see, when your money has the power of a “reset” every year it is a game changer for the future value of your money. Example: you place money in a program that allows you to track an index instead of actually owing the underlying security. Let’s say for the sake of this example that the index you follow is at the level of 100 on the day your money starts tracking that index.
Let’s also assume that one year later that index is now 80 instead of 100. This is a 20% loss that because of the way you have your money structured you did not participate in any loss whatsoever. Your cash didn’t lose any market value even though that index you track is down 20%! This is powerful in and of itself but it gets even better.
Now let’s say from the first day of your second year until the last day of that same year the index that went down to 80 rebounds that year to 90. If this was a share of a mutual fund or a stock you would still be underwater 10%. However, since you took advantage of tracking the index, your cash went up the second year because your base for determining an index’s gain or loss “reset” back to the 80 level which it was at the end of the first year.
So, in year two, instead of being still underwater on your investment your cash grew by a percentage of the index gain from 80 to 90! Would this have changed my new client’s end results? The results would have been very different over that 8 year period by utilizing the power of indexing with the power of a reset.
