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More reality training! December 18, 2008

Posted by shaferfinancial in Uncategorized.
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Thanks to Doug Short at dshort.com for this chart:

sp-composite-since-1871-nominal-real-overlay

This chart tracks stock prices (S & P Composite) from 1871 to now and accounts for inflation.

Shockingly when inflation is taken out of the rate of return (demonstrated by the blue line) the total return is 1.7% annually.  The red line is the normalized return turned into a constant slope.  Now do you realize why I get so upset at those charts mutual fund sales people use to demonstrate potential rates of returns for mutual funds?  That’s 1.7% return before expenses.  The average mutual fund has over 2% expenses, so you would have lost purchasing power investing in mutual funds over the long haul!!!!

This is exactly the same effect I discovered back 10 years ago when I grew concerned about my lack of financial progress.  I was doing the exact thing Wall Street told me to do, save 15% and invest in mutual funds, pay off my mortgage, control expenses.  The numbers were just not adding up for me. 

The problem is, of course, I had no wealth creation strategies in place, mistaking mutual fund investing for wealth creation.  As this chart demonstrates, mutual funds don’t even account for inflation!

Ready to take a hard look at your financial education now?  Ready to join the Shafer Wealth Academy to transform your financial life?

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Comments»

1. Jocelyn - December 20, 2008

I would like to know how to join the shafer wealth academy?

Please help me.

Thanks,

shaferfinancial - December 21, 2008

Jocelyn, just click on the contact tab at the top and send me a message. I will contact you!


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