All Of The Money In The World

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let's set the record straight about investment performance.

All of us are exposed to investment firms, investment advisors, advertisements, articles, CDs, Websites, and seminars that use single investment incidences and exceptions to project incredible and impossible annual investment returns of 100%, 50%, and 30% to get the attention of the investing naïve and the greedy unsuspecting.

Warren Buffett, in 1999, reportedly made the uncharacteristically bold guarantee that he could earn 50% profits on a portfolio of common stocks each year -- under one condition; he has yet to explain the condition.

Keep in mind that those who even suggest or possibly promise frequent or consistent annual investment returns of 100%, 50%, and 30% cannot deliver.

If the higher ranges of these investment rates of return were possible to achieve on a consistent basis, a small number of investors -let's just say only 1000 investors each starting with just $100,000.00- would have just about all of the money in the world in the not too distant future.

Since these returns are commonly suggested to be in the realm of possibility, the purveyors, or should I say predators, of these investment returns should not have to be promoting their investment scams and they should have about all of the money in the world by now; there shouldn't be any money left in the world for either you or for me to retire.

If you will apply a simple investment approximation, the rule of 72, by dividing 72 by a selected, annual compound rate of return to determine the number of years it will take capital to double at the assumed interest rate, you will quickly conclude that inflated investment returns cannot be a possibility.

The lower the interest rate assumption, the closer the approximation to the actual:

  • At a 10% compound annual rate of return, capital will double about every 7.2 years; 72 divided by 10.
  • At a 30% compound annual rate of return, capital will double about every 2.4 years; 72 divided by 30.
  • At a 50% compound annual rate of return, capital will double about every 1.4 years; 72 divided by 50.
  • At a 100% compound annual rate of return, capital will double about every 8 months (actual, 1 year) ; 72 divided by 100.

That said, keep in mind, that back here on planet earth that a $40.00 equity just going to $43.00 in a year, a 7.5% return on capital, a $30.00 equity just going to $33.00 in a year, a 10% return on capital, or a $20.00 equity just going to $22.00 in a year and declaring a $1.00 dividend, a 15% return on capital, are realistic investment return expectations for an investor seeking primarily capital growth and willing to assume moderate investment risk with occasional variances above and below these constant investment returns in extreme and unusual investment circumstances; best of all, you can deliver.