Seven Steps for Building Wealth: Step #6

Written by Dave Young, President

Step #6:  Avoid Large Losses

Some investment losses are unavoidable. They come with the territory.

The key is to do your best to minimize large losses. Large losses can quickly reverse the benefits of compound interest. You should research thoroughly before turning your money over to someone else. That will increase your odds of avoiding investment scams and sub par money managers.

For example, if you lose 25% of your account, you need to make 33% to get back to even, which is workable. If you lose 50% of your portfolio, you have to make 100% to get back to even, obviously a much more difficult task. A loss of 90% of your portfolio requires a gain of 900% to get back to even. Forget about it.

A much better scenario is to follow your investment strategy and avoid the loss in the first place.