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I’m 61, and I hope to be able to retire soon, but I’m watching my retirement savings completely eroding away day after day. The only place I’m not losing money is $180,000 I have sitting in the bank earning almost zero interest. What should I do?
Come on, man. “Completely eroding away day after day?” That’s a little dramatic. One of the things you have to understand, and coming to grips with it has helped me since I began doing research on things like this 30 years ago, is we all have a drama queen living in our brain that exaggerates things—especially when it comes to investing. So, take a deep breath and calm down. Everything’s going to be okay.
Studies have shown us it takes $3 of gain in an investment to emotionally offset $1 of loss. Our brains record negative things at a much greater rate than they do positive things, and it takes a lot of emotion to recover from that. Your investments may be down a little. If you’ve got $1 million in there, it may be worth $900,000 right now. Next year, it’s liable to bounce up to $1.1 million. In other words, your entire retirement savings is not “eroding away.”
Have you ever heard people say they lost all their money in the stock market? Well, that’s mathematically impossible, unless you put all your money into one company, and that company completely closed and was worth zero. Remember Enron? What most people really mean when they say that is they lost a bunch of money because they freaked out and went into hyper-drama mode, then pulled all their money out while the market was down.
Jesse, did you know that in the last 20 years, every down year in the stock market was followed by two years of record gains? Facts and mathematics are your two best friends when it comes to telling your inner drama queen, “Shut up, we’re going to continue to invest!”