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What a difference your return makes

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    What a difference your return makes

    I am often amused when I hear an adviser say "Well our funds average is 11%, and theirs is 12%. That's just one percentage point difference."

    If a fellow begins investing $10,000 per year at age 25, and at 60 years old he looks back at his investment, here is what he has:

    At 5% return, he's accumulated $1 million.
    At 10% return, he's accumulated $3.3 million.
    At 15% return, he's accumulated $11.7 million.
    At 18% return, he's accumulated $25 million.

    Those percentage points equal lots of cash!
    Never underestimate the power of stupid people in large groups.

    -George Carlin

    #2
    This is also why expenses matter so much. The difference between an expense ratio of 0.3% and 0.8% can be tens of thousands of dollars over a couple of decades of investing.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    Comment


      #3
      Originally posted by TexasHusker View Post
      I am often amused when I hear an adviser say "Well our funds average is 11%, and theirs is 12%. That's just one percentage point difference."

      If a fellow begins investing $10,000 per year at age 25, and at 60 years old he looks back at his investment, here is what he has:

      At 5% return, he's accumulated $1 million.
      At 10% return, he's accumulated $3.3 million.
      At 15% return, he's accumulated $11.7 million.
      At 18% return, he's accumulated $25 million.

      Those percentage points equal lots of cash!
      Texas - You're correct in that the math works well...that said, can you show me an investment that will deliver a consistent 18% return for 35 years?

      That was possible when interest rates were high in the 80s with long term T bills, but it seems harder these days.

      I know, I've looked.
      Last edited by james.hendrickson; 03-08-2018, 04:51 PM. Reason: context and spelling
      james.c.hendrickson@gmail.com
      202.468.6043

      Comment


        #4
        Originally posted by james.hendrickson View Post
        Texas - You're correct in that the math works well...that said, can you show me an investment that will deliver a consistent 18% return for 35 years?

        That was possible when interest rates were high in the 80s with long term T bills, but it seems harder these days.

        I know, I've looked.
        I'm in the high teens/low 20s per year on my RE holdings.

        You can get near 18% without too much trouble:

        https://www.savingadvice.com/forums/470801-post25.html


        My dad has Alzheimer's disease, and a year ago I sold his house and contents and used the proceeds to buy a vacation rental for income. We paid $182K for the rental. In year one, the rents are going to come in at right at $32K. Back out about $7K of that for taxes, utilities, and insurance. So he got $25K back in year one, or 13.7% yield.

        In year two, I fully expect $35,000 in rents, so $28,000 net, or 15.4% yield.

        We are also depreciating $4125 per year, so that's another $600 in his pocket, boosting the year one yield to 14%, and year two to 15.7%.

        Add in 3% average annual appreciation in the value of the home, and you're at 17% and 18.7% respectively.

        I didn't look too hard for this house. I had to act pretty quickly. I am not claiming RE is the only way to make good money, but it's a lazy man's way for sure.
        Last edited by TexasHusker; 03-08-2018, 06:17 PM.
        Never underestimate the power of stupid people in large groups.

        -George Carlin

        Comment


          #5
          Originally posted by james.hendrickson View Post
          Texas - You're correct in that the math works well...that said, can you show me an investment that will deliver a consistent 18% return for 35 years?

          That was possible when interest rates were high in the 80s with long term T bills, but it seems harder these days.

          I know, I've looked.
          High returns equal high risk. I believe in order to get consistent higher returns the investment most likely has to be an entrepreneur endeavor. For example, you can host a seminar and lose all of your money if no one shows up. On the other hand, you could make a 75% return. Also, you could write a book and spend a few thousand dollars getting it from conception to the book shelf. You can lose all of your money or you could possibly become a multi-millionaire within a year.

          Comment


            #6
            Originally posted by prosper View Post
            High returns equal high risk. I believe in order to get consistent higher returns the investment most likely has to be an entrepreneur endeavor. For example, you can host a seminar and lose all of your money if no one shows up. On the other hand, you could make a 75% return. Also, you could write a book and spend a few thousand dollars getting it from conception to the book shelf. You can lose all of your money or you could possibly become a multi-millionaire within a year.
            You don't have to be an entrepreneur to earn 17% + in real estate. And over the long term term, the risks are less than the stock market I can assure you. I've done both.

            Now the 75% yield, yes, you're going to have to take some risks. I have done a few of those, too. On several, I lost the whole investment. But on one, I probably made 5000%, and that paid for all those froggies I kissed.
            Last edited by TexasHusker; 03-11-2018, 08:58 PM.
            Never underestimate the power of stupid people in large groups.

            -George Carlin

            Comment


              #7
              Originally posted by TexasHusker View Post
              You don't have to be an entrepreneur to earn 17% + in real estate.
              This is just semantics but the definition of entrepreneur is just a businessman/woman, someone who owns and operates a business. If you buy property for the purpose of renting it out, you are a real estate entrepreneur.

              That has nothing at all to do with the risk or potential return of the business. It could be very high risk or very low risk. You're still an entrepreneur if you're running the business.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                Originally posted by disneysteve View Post
                This is just semantics but the definition of entrepreneur is just a businessman/woman, someone who owns and operates a business. If you buy property for the purpose of renting it out, you are a real estate entrepreneur.

                That has nothing at all to do with the risk or potential return of the business. It could be very high risk or very low risk. You're still an entrepreneur if you're running the business.
                If you use that methodology, then every person investing a dollar of their own money in anything is essentially an entrepreneur: In that mutual fund you own, you actually don't own a fund, but instead a fraction of a bunch of companies. If you buy a REIT, you own a fraction of some real estate. You are technically a business owner.

                I view an entrepreneur as someone who is creating some sort of business, or buying an on-going business concern, that is really more venture capitalist in nature. Unless you are being really silly, a piece of real estate doesn't fall into that category.
                Last edited by TexasHusker; 03-12-2018, 02:06 PM.
                Never underestimate the power of stupid people in large groups.

                -George Carlin

                Comment


                  #9
                  Originally posted by disneysteve View Post
                  someone who owns and operates a business.
                  Originally posted by TexasHusker View Post
                  If you use that methodology, then every person investing a dollar of their own money in anything is essentially an entrepreneur
                  Not at all. I said "owns and operates", not just owns. I own stock in hundreds or thousands of companies but I have no involvement at all in their operation. That doesn't make me an entrepreneur at all.

                  You own and operate rental properties. You own and operate a management company. You own and operate several franchises. You are an entrepreneur. I am not. Now if I owned my own medical practice, which I don't, than I would count as an entrepreneur.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                    #10
                    I would say I was an entrepreneur when I was actively running my collectibles business. I was buying merchandise, setting up and selling at various shows, publishing a mail-order catalog, establishing and maintaining a website, selling on ebay, etc.
                    Steve

                    * Despite the high cost of living, it remains very popular.
                    * Why should I pay for my daughter's education when she already knows everything?
                    * There are no shortcuts to anywhere worth going.

                    Comment


                      #11
                      Okay.
                      Never underestimate the power of stupid people in large groups.

                      -George Carlin

                      Comment


                        #12
                        Originally posted by TexasHusker View Post
                        If you use that methodology, then every person investing a dollar of their own money in anything is essentially an entrepreneur: In that mutual fund you own, you actually don't own a fund, but instead a fraction of a bunch of companies. If you buy a REIT, you own a fraction of some real estate. You are technically a business owner.

                        I view an entrepreneur as someone who is creating some sort of business, or buying an on-going business concern, that is really more venture capitalist in nature. Unless you are being really silly, a piece of real estate doesn't fall into that category.
                        Okay.

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