Competitive Rate of Return

The Net Rate your Strategies Receive with Regard to Similar Returns that are Available.

If your Strategy has Safety of Principal, you understand your Strategy, and you have taken all the steps to ensure your Strategy is efficient, then the Rate of Return does not need to be as high to achieve the same result because you have lowered the investment expenses and potential downside risk.

Hypothetical Example:

Let’s assume that a mutual fund has a 3% commission and a 1% management fee. The mutual fund would have to earn 12% to equal an efficient strategy earning 8%.

Taking this example one year further, let’s assume that the mutual fund lost 5% in the second year. Obviously, there is no new commission, but the total reduction to your account would be 6% (5% loss and 1% fee). Under one of our 8% Strategies, your value would not be reduced when the market declines in year two.

To illustrate the basic arithmetic of gains and losses, let’s assume that you had invested $10,000 in each of the investments above without concerns for the mutual funds commissions and fees. The mutual fund would have grown to $11,200 (+12%) in year one and dropped to $10,640 (-5%) in year two. In our 8% strategy, the funds would have grown to $10,800 and remained there even in a down market in year two.

Continuing, the full effect of negative returns sometimes can escape notice. If you earn 12% on $10,000 in year one and lose 12% in year two, many will conclude they are back to even, but they are not ($9,856 value). This is also true if you lose 12% the first year and gain 12% in the second year.

The main theme is that there is more to a successful Strategy than simply Rate of Return. When choosing strategies, the Rate will likely be one of the last factors to consider. Remember Mr. Buffet’s Rule #1 and #2 and you will be on your way.

If this sounds like the way you would like to develop your investment plan, then CLICK HERE below and let’s start a conversation.


*Early withdrawals maybe subject to a surrender schedule.

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