Could you afford another GFC or big financial loss?

It is said that financial crises or corrections happen every 7 to 10 years and this can clearly be seen over the last 30 years (roughly): 1987 Black Monday, Saving & Loans crisis of the 90’s, Dotcom crash of 2000, 2007 – 2008 Global Financial crisis…2015 what’s next?

The before mentioned crises do not even include all the international crises which also have an effect on the US economy. If you look up historical charts of crises, you will also see that this pattern has pretty much held true since the beginning of financial markets.

In each of the above financial corrections most Americans were negatively hit financially in some way – some harder than others. Depending on their situation, many may have lost their homes, many would have watched their retirement dwindle down to nothing and many others lost their jobs. In some severe situations, many lost all of the above.

We are now sitting in 2015 and right in the middle of that 7 to 10 year correction range. World economies are in a state of flux and most economists are starting to say that financial markets are all overvalued. Could we be on the precipice of another crisis or correction?

Now may be the time to think about your finances, especially your debt levels, savings and investments.

Below is a chart that quickly reveals how much you would have to earn to recover any losses in another financial crisis, correction or loss in general.

If you lose How much you need to gain to break even
5% 5%
10% 11%
15% 18%
20% 25%
25% 33%
30% 43%
35% 54%
40% 67%
45% 82%
50% 100%
75% 300%
90% 900%


As you can see from the above chart, the more you lose the harder it is to recover. Losing at any time can be tough and depending on your life stage, it can be devastating. If you manage your finances, now may be a good time to review your positions and if you have a professional overseeing your affairs, now may be the time to reach out to them and have a chat.

It does not matter how much money you have or earn, if you want to protect and keep your nest egg, it is important to review your financial position and any possible threats to it, especially when there is chatter of potential crisis on the horizon. At the same time, you do not want to miss potential gains – it comes down to staying on top of your finances and following a plan that you are comfortable with.
Chart source: Tony Robbins - Money Master The Game