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230% annualized returns! Would you consider this investment if it could change your financial life?
Like investing zombies, many of us rely on stock indexes for investing in the market. It makes sense. Indexes are simple, diversified, low-cost and anyone with a trading account can purchase them.
Over the past decade, the S&P 500 has dramatically outperformed actively traded mutual funds by a large majority. Here’s the rub: Over the past 50 years, the S&P 500 has averaged a 10.9% return annualized. This is great if you have a lot of wealth, but not as great if you are trying to build wealth.
10.9% is good when you compare it to a measly 0.4% that a high yield savings account pays. In the US, the average inflation rate for the past 50 years is approximately 3.9% per year.
Let’s pretend you have $20K in savings. You invest it in the S&P 500 for 20 years and get 10.9% annual returns on a 3.9% inflation rate. Here’s what the results would look like if you didn’t touch your investment for 20 years.
You now have nearly three times ($53,680) your purchasing power from your initial investment. But, this begs the question: Is that enough…
