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The Danger of Averages

Sam Liang

Math is a funny thing, especially when it comes to averages. Let me show you what I mean. Let’s assume you have $100,000. The first year it gains 10% and the second year it loses 10%. Your average return is 0%, right? We add 10, then subtract 10, then divide by 2 years. That’s an average of 0%.

But, you’ve actually lost money in this scenario, and here’s how. Start with $100,000. Say you gain 10% the first year, so now you have $110,000. Then you lose 10% of the $110,000. In other words, you lost $11,000, which leaves you with only $99,000.

You averaged 0%, but you lost money. Now, let’s reverse the scenario. You lose 10% the first year and gain 10% the second year. Your average return is still 0%, isn’t it?

Start with $100,000. Let’s say you lose 10%, and now you have $90,000. Then you gain the 10% back. But, you’re only getting 10% of your $90,000. That’s $9,000 you earned back, leaving you with only $99,000.

Again, you’ve lost money with an average return of 0%. Maybe we can all agree that math can play tricks on us. So what?

Well, what if you didn’t have to worry about the math working against you? What if you didn’t have to worry about going backward financially?

What if you followed the two simple rules we’ve been using with clients for over 20 years?

Rule #1:  Just don’t lose the money

Rule #2:  Don’t forget rule #1

Discover how you can protect your money from the loss the market

About the Author:

Sam is Chief Executive Officer of Rubino & Liang. His background is in helping to keep money protected. He searches to find retirement strategies and insurance products that are designed to follow those two very important rules: Rule #1 – Just don’t lose the money, and Rule #2 – Don’t forget Rule #1.

Insurance products are sold through R+L Insurance Agency, LLC. Professionals from Rubino and Liang, LLC may transact business only in states where properly qualified and licensed. Sam Liang is licensed to conduct insurance business in: Massachusetts, Michigan, New Hampshire, Maine, Rhode Island, New York, Florida, Georgia, New Jersey, Washington, Nevada and Virginia.

 

 

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