Is Your Net Worth Bouncing Like a Yo-Yo?

Investors and Colleagues,

August has been a tremendously volatile month for most investors.

Two weeks ago, four of the five trading sessions for the Dow featured a 500 point range. (Remember when a 100 point move seemed like a big deal?). Last week, the stock market initially tried to rebound, but then finished the week on a sour note – with the Dow closing back below the key 11,000 mark.

Several of the financial advisors that I speak with are expecting the volatility to continue. Many investors will wait to make any adjustments to their portfolios until after they receive their August account statements.

Based on the action so far, the average retirement account is likely to see a double-digit percentage loss just for the month of August. Losses like this can have a tendency to be a self-fulfilling prophecy, as lower prices lead to panicked investment decisions – resulting in more selling and more price declines.

My point here is not to add insult to injury. Obviously no one likes to see their neighbors sustaining losses and struggling to protect their nest eggs. My purpose with today’s message is to help you develop a plan for this turbulent environment.

Stability Trumps Excitement…

As you probably know, my company (Ashford Capital Partners Inc.) invests in residential real estate developments that can be bought at a substantial discount and eventually sold to homebuilders and residential developers.

Our goal is to create stable investments for our clients. Investments that pay a preferred rate of return, which is agreed upon when we initially sign a contract. So it doesn’t matter whether the market is up, down, or sideways… that preferred rate of return is stable.

In addition to the preferred rate, our investors also participate in the profit when we sell a property. So there are essentially two ways our investors make money. Part of the return is stable and predictable. The other portion is based on the difference between our purchase price and what we can sell the property for.

The beauty of this arrangement is that our investments have both the stability of a “fixed return” investment, along with the profit potential of a more aggressive growth opportunity. For our investors, the stability of our investment approach is particularly comforting when the overall economy and the stock market is anything but stable.

Losses Are Hard To Recover

Albert Einstein called the concept of compound interest the “eighth wonder of the world.” An investment that continues to generate positive returns can grow exponentially as profits are reinvested and grow alongside the initial investment capital.

But while the compound effects of gains can be tremendous, the compound effects of investment losses are very sobering.

If your investment account loses 20% of its value, it actually takes a 25% return to get back to its original value. If your account loses 33%, it takes a full 50% increase to get back to even. A 50% loss requires a 100% return, and if you lose 66% of your account, you need a 200% return to recover your losses.

Based on these numbers, it’s extremely important for investors to protect against losses – so that they can actually participate in the eighth wonder of the world.

Considering the importance of protecting your account, don’t you owe it to yourself to put at least some of your assets into a more stable (and growing) investment program? Instead of watching your net worth bounce on the string of a yo-yo, why not create some stability into your investment process?

I would love to have a conversation with you this week about how we can help you protect your assets. Don’t wait until the Dow crosses below 10,000 – or 9,000 – or worse. Take action today and let’s create value and stability for your investments.

Wishing you every success,

Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners

[email protected]