How to Help Clients Pick Winners and Avoid Losses: Compound vs. Speculation Calculator

How to Help Clients Pick Winners and Avoid Losses Compound vs Speculation Calculator

A major insurance company conducted a survey interviewing 439 people, ages 44 to 75. The survey gave them a choice between two products. The first product had an 8% rate of return, but had the possibility of losing value and being vulnerable to market downturns. The second product was a 4% rate of return, but was guaranteed not to lose value. 76% of the respondents said they preferred the guarantee over the possibility of losing money.

There is more to be gained by avoiding losses than picking apparent winners! Our role with the Circle of Wealth® system is to help our clients avoid, minimize, or eliminate wealth transfers. The keys to growth of money are uninterrupted compounding and consistency. It is difficult to maintain consistent returns when there are fluctuations with market interest rates.

How to Illustrate Compound vs. Speculation Rates of Return
Ask your client, “How would you like to be right 90% of the time, but still find yourself in a losing strategy?” How is this possible? The Compound vs. Speculation application does an excellent job of illustrating this possibility.

  • Plug-in an Initial Balance of $100,000
  • Use an 8% Rate of Return
  • Project for 10 years
  • Both sides illustrate the return at $215,892
  • Go to the 8th year on the right side in the Speculation column
  • Plug-in a negative 37% (this occurred in 2008)

Now the Speculation Ending Balance shows $125,397. This is less than a 3% rate of return for that 10-year period. The client had nine good years of returns and only one year of poor returns. However, the results were dramatic. The money was reduced by a whopping 42%.

This communication tool includes the capability for you to use actual “Market History” to illustrate what can happen when you introduce a negative return into the equation. Take this tool for a test drive. It will pay you big dividends when talking with your clients about compound vs. speculation.


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