Growing up with a stockbroker for a father gave me a unique perspective of the equities market. My financial education started at the kitchen table each night at 6 pm after my dad came home from work. "Do you know what makes money?" he would ask me. "It's money that makes money. And the money that money makes, makes more money."
That idea that money as a product is the foundational premise behind our business. Money sells itself because everyone needs it. The challenge for the managers of that money is to invest it wisely.
The old idiom “a fool and his money are soon parted” is true. You must be wise, prudent, skeptical, and cover the downside in order to survive and thrive. Too many investors just look at the potential; however, the prudent manager must first look at covering the downside. If you remove the risk, the profit will often take care of itself.
Each year, Dalbar publishes a research paper on how investors underperform as compared to the index fund for the S&P 500. Once again, the 2015 study shows that the average mutual fund investor makes 8% below what the index fund makes. The average return is close to 5.5% APR.
There are two things to notice about this study:
- 5.5% is an incredibly low return. How can investors stand for that?
- This does not take into account inflation, opportunity costs, and taxes.
Is My Return Keeping Up with Inflation?
According to our government, the current level of inflation is around 1.5 to 2%. According to ShadowStats.com, however, the rate is closer to 10%. In either case, you're either barely keeping up with inflation, or your purchasing power is falling behind. But how do we solve this? We need to move to what my friend George Antone calls the “right side” of the equation.
Stay tuned to our blog for more information on this topic! For more investing advice or to find out if a small balance real estate investment is right for you, contact our knowledgeable real estate investing experts at The Legacy Group today.