No One Sees Average Returns
Dear Reader,
Dave Ramsey and Suze Orman would have millions of their followers believing that they can compound their retirement savings by 8 to 12% per year, but that’s total bullsh*t.
The markets have historically averaged roughly 10% annually, including dividends.
The mutual fund industry and its apostles, like Orman, use retirement calculators with a compounded rate of return of 10%, but that’s not even close to what any investor is going to see that follows their investment advice.
$10,000, compounded on an annual basis of 10% for 10 years, will amount to $25,937.
You have to keep in mind, though, that’s not what the average return will ever come out to for your portfolio.
10% the first year, -20% the following year, and a 11.5% gain the next year leaves your $10,000 at exactly where it started, yet your broker can tell you that your average return is 10%.
None of these compounding calculators factor in investor psychology, family emergencies, or lack of funds that may be needed in the future.
It’s why in 2018, a year the S&P 500 saw a gain of 9.41%, according to Dalbar, who researches investor returns, the average portfolio actually lost 4.38%.
They also found that on a 20-year study where the S&P 500’s annualized return was 7.68%, the average equity fund investors gained only 4.79%.
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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Keep in mind that indices never account for taxes, but in real life, your portfolio will have to pay taxes either now or in the future.
This idea that you’re just going to throw money at a retirement account that buys mutual funds or indices needs to die. It’s a bad idea, and the only people it’s working for are the firms that are creating the funds and charging the fees.
On August 20th, we hope to shatter this myth with Daniel Ameduri’s new book,Don’t Save for Retirement.
I have a feeling this book is going to be like the book Rich Dad Poor Dad, where it takes a lot of heat and criticism during its launch but will be proven correct over time.
This is especially true since we know the solutions for your finances within the book are already what the wealthy have been doing for centuries.
Best Regards,
FutureMoneyTrends.com
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