I just noticed this on the NY Times website: an interactive graphic where you can calculate how long it will take your portfolio to rebound to its peak level before the crash. I tried running the numbers for my 401k, which I think peaked at about $200k, maybe a bit higher. For me to reattain that level in 2 years, the market would have to have annual returns of 20%! Not bloody likely!
More realistic, though still optimistic at this point, would be annual returns of 5%– that means it would take 4 years to regain my former peak.
It’s also interesting to play with small changes in the annual rate of return to see how it affects the account balance after 30 years– at a return of 4%, I’d have a little over $1 million; at a return of 6%, I’d have over $2 million. And in my bizarro-world scenario of 20% annual returns, I’d have about $140 million. Leaving aside that craziness, it’s amazing that seemingly small differences in market returns could make such a dramatic difference in my retirement lifestyle!
Of course, this is just my 401k, where my contributions are limited. I’m also not taking any extra employer contributions into account. But still, it’s scary. When the market drops so rapidly and becomes so volatile, it’s tempting to think it could rebound as dramatically and quickly… but that just isn’t the way it happens…
Read more here: The Comeback Calculator
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