Wednesday, November 11, 2009

Rate of return

My examples that I use on this blog are meant to encourage real world examples of savings opportunities to become real world investment opportunities. I try to keep it relatively simple, and that is what I try to do personally as well.

I feel that a good rate of return (or investment return) that should be factored into "how much do I need to save" calculations is 5-6% before taxes/inflation. This differs quite a bit from what some companies want you to believe their products will do for you. I figure, if you "low ball" your expected return, you are more likely to try to save more. This is of incredible benefit because it puts more compound interest at your service, which is really my end game anyways.

I don't just want to make 5-6% and take it off the top every year, I want that 5-6% to add into my investments and continue compounding until I retire. This magnifies your savings in a ridiculous manner, which I like to highlight on this blog.

If someone is trying to sell you a product and is telling you that you will make ridiculous returns per year, you have to ask yourself some questions.

Why are they selling this product to me, instead of investing in this amazing opportunity themselves?
What do they invest in personally?
Will they share their personal asset allocation with you?
What does the product cost, including all fees?
Do I really need this product?
Is this product better than what is available to me as an individual investor?
Is this a "combo" product, that does not really do as well as individual products in their respective area?

After you work through these questions, many financial products do not hold their salt. Keep it simple with low fees, make it automatic, and start your plan as soon as possible. This will enable you to save for what you want, and you won't need to stress about it.

No comments:

Post a Comment