Build Wealth by Investing in Ownership Investments and Earning Average Returns

You can build surprising wealth with the help of Quicken 2012 just by investing in ownership investments that produce average returns. By ownership investments are basically stocks and maybe real estate. Here are three examples:

  • Just by earning the stock market’s average inflated adjusted return of around 6 percent, a 25-year-old saving $150 per month can build as much as $300,000 by age 65.

  • Just by earning the stock market’s average inflated adjusted return of around 6 percent, a 35-year-old saving $300 per month can build as much as $300,000 by age 65.

  • Just by earning the stock market’s average inflated adjusted return of around 6 percent, a 50-year-old saving $850 per month can build as much as $300,000 by age 65.

An important truth here is that, sadly, most people miss this information. Consider what this means: You don’t have to get fancy. You don’t have to spend a bunch of time worrying. You don’t need to spend a bunch of money on advisors, newsletters, or commissions — or even on books about using Quicken.

Compound interest is a powerful engine, and it creates wealth. And that means that you can build surprising wealth by investing in ownership investments and earning just average returns.

Note, too, that you can lock in average returns by choosing a low-cost index fund, such as The Vanguard Group’s Index 500 or Total Stock Market Portfolio mutual fund.

If you choose an actively managed mutual fund or a mutual fund that charges average fees for managing your money, you basically don’t have a snowball’s chance in you-know-where of actually earning an average return over time.

Over the long investment horizon required to prepare for retirement, if you go this route, chances are you’ll actually earn a return that’s equal to the market’s return less the expense ratio that the mutual fund manager charges and the trading costs the manager incurs.

Expense ratios for actively managed funds run about 2 percent annually. So, rather than a 6 percent annual adjusted-for-inflation return, you’ll actually earn a 4 percent annual adjusted-for-inflation return on actively managed mutual funds. That's brutal.

One final point: People see way more risk in this investing than really exists — particularly after the last few years. But over decades, which is how long you’ll invest, the risk drops.

If you had begun investing in the stock market in the mid-1920s and then continued systematically investing for 25 years through the crash of 1929, the global depression of the’30s, World War II, and the start of the Cold War, you would have earned about an 8 percent return on your money.

Given that the inflation rate was just 2 to 3 percent over this same period of time, you still could have built wealth by investing in ownership investments producing average 5 to 6 percent returns.

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