Investing strategies-Preservation of Capital and Compounding to Wealth
Compounding to Wealth
Most wealth is built steadily over long periods of time. There are exceptions such as some of the dot com wealth that was built in the second half of the 1990′s. (At least for those that were smart enough to protect their assets from the downturn.) That was a unique period in time that allowed for the growing of companies and investments faster than has normally been possible. However, more common are those people that have compounded to wealth steadily and meticulously year after year after year.
Preservation of Capital
To put it simply, if we don’t have any chips left, we can’t play the game. I have been referred clients that lost 50% or more in the downturn of 2000, 2001 and 2002. If an investor loses 50% of his portfolio, then he must earn 100% just to get back to his baseline. This is very difficult to do. As most of you know, I believe strongly in “compounding to wealth”. When you lose 50%, it is close to impossible to get back on track with your original compounding model.
Posted: July 11th, 2010 under Knowledge of Stock, Stock of Knowledge.
Tags: investing stocks, Investing Strategies, mutual fund investing basics