What You Think You Know About Investing Is All Wrong!

What if you’ve been misinformed about investing? Or if the amount of money you hope to accumulate is suddenly lost in a drop in the market? What about the financial plans you’ve made? Everything you’ve learned about paying yourself first, investing in safe funds, and compounding interest. Has it all been a lie?

In an article that appeared in realinvestmentadvice.com, Lance Roberts tries to clarify some misconceptions.

Compound and Average Are Not The Same Thing

Historically the stock market has AVERAGED 10% annually over the last 120 years. So, you decide that’s where to invest your money. However, the 10% really comes from long-term economic growth (6%) and dividends (4%).

And since 2000, economic growth and dividends combined are averaging 4-5%. Just a little better than your savings account.

Maybe the compounding part of investing appeals to you, especially when you hear things like, “Markets have returned roughly 10% per year of COMPOUNDED growth, INCLUDING the down years.” The truth is markets don’t COMPOUND! “The power of compounding only works when you do not lose money.” 

The chart below shows $1000 invested using an actual basis and a compounded rate of return of 6%.

In the article Roberts says, “The top line is what investors THINK they will get (compound returns.) The bottom line is what they ACTUALLY get. The difference is when losses are applied to invested dollars. The periods of time spent making up previous losses is not the same as growing money.”

This is when you’re getting your account back to where it was, back to breakeven. It’s not growing. It’s replacing what was lost.

Variable Rates Of Return Change The Game

What if you save 10% every year? Some believe this is the “Magic Number” for success. As Roberts shows in the following chart, it may not be so magical.

“The first is that saving 10% annually leaves individuals far short of their retirement needs. The second is that despite two massive bull market advances, it was the lost 13-year period from 2000-2013 which left individuals far short of their retirement goals. 

What the majority of investors misunderstood when throwing around numbers like 6% average returns, 10% compound returns, etc. is that losses matter, and they matter a lot.

Here are the TWO most important lessons:

  1. Getting back to even is not the same as making money.
  2. The time lost in reaching your financial goals cannot be recovered.”

He continues, “This isn’t a message of ‘doom,’ but rather the simple reality that every bull market advance must be followed by a reversion to remove the excesses built up during the previous cycle.”

The transparency offered by institutions and advisors makes investing more user friendly. You have a say in where your money is and what it’s doing. You don’t have to rely solely on your broker’s advice.

When you look at the “lost 13-year period” shown on the charts, you can see the advantages iFlip gives you by using Algorithmic Intelligent (A.I.) Stock Trading Software. 

Analyzed daily, A.I. will automatically buy, sell or hold your stock positions. This keeps you out of major losses. 

You are set up for success. Managing your risk. Cutting your losses. Knowing the best things about investing.

Like this article?

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest

Stock Market Crash Here?: How Investors Avoid It

November 5, 2019

Impending Crash. Warning Signs. Financial Crisis. Great Depression. Stock Market Crash. Recession. Global Crash. Market Meltdown. Headlines are predicting a major crash is coming. It...

AI Beating The Stock Market: Breakout With Stats

October 27, 2019

Everybody wants to win big and lose small. But whenever you invest in anything where you can see the price change, you feel compelled to...

Algorithmic Intelligence AI | How It Is Disrupting Your World

October 27, 2019

When Netflix quietly entered the video scene back in 1997, Blockbuster didn’t think it had anything to worry about. Blockbuster was booming, as everyone wanted...

How to Stop Losing Money In Your Investment Account

October 27, 2019

You are probably losing money in your investment account and don’t even know it. Have you looked closely at a financial statement lately? There are...

Stock Market Crash Here?: How Investors Avoid It

November 5, 2019

Impending Crash. Warning Signs. Financial Crisis. Great Depression. Stock Market Crash. Recession. Global Crash. Market Meltdown. Headlines are predicting a major crash is coming. It...

AI Beating The Stock Market: Breakout With Stats

October 27, 2019

Everybody wants to win big and lose small. But whenever you invest in anything where you can see the price change, you feel compelled to...

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

You were referred by

Zero-dollar ($0) commissions are available for self-directed Individual cash or margin brokerage accounts that trade U.S. listed securities via mobile devices and via web interface. To obtain the commission and fee schedule, please see our website at www.iflipinvest.com. Note that certain Flip Investor Inc. Product features listed are currently in development and will be available in the near future. System execution price, speed, response time, liquidity, market information, and account access times are affected by many factors, including market volatility, size and type of order, market conditions, system performance, and other factors. Some of the information provided show hypothetical results which may or may not represent live performance. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns.  Keep in mind that while diversification and the use of algorithms may help manage risk it does not assure a profit, or protect completely against losses, in a down market. There is always the potential of losing money when you invest in securities, or other financial products.  Investors should consider their investment objectives and risks carefully prior to investing.

Past performance is not indicative of future performance. iFlip data results assembled using various Flip algorithms applied to the equities listed on this webpage (if any). Results compiled for each equity and each algorithm assume a 10,000 initial investment beginning on Jan 1st 2005. A $0.01 / share commission applied. All iFlip price assumptions are based on the opening price of each day as found in Yahoo finance. Yearly NAV data points compiled by compounding annual returns using standard year over year accounting. S&P500 results are derived using the SPY as a proxy. The data on this webpage is not intended as a solicitation. Always seek professional advice for suitability.