Beruflich Dokumente
Kultur Dokumente
All it Takes to make a Million Dollars is Time, Consistency and the Rate of Return,
by Timothy McMahon, editor
www.fintrend.com
All it Takes to make a Million Dollars is Time, Consistency and the Rate of Return,
by Timothy McMahon, editor Financial Trend Forecaster
www.fintrend.com
2005 Reprint info at the end
Before I explain how to beat 95% of all investors, you have to understand why a small difference in your rate of return makes a BIG difference in your financial future. The difference between earning 5% per year and 15% per year is like the difference between a minnow and a whale!
If you had a nest egg of $10,000.00 and invested it for 32 years at 15% you will have One Million Dollars!
But at 2% you will only have $ 20,000 ! Which would you prefer $20,000 or One Million? Investing $10,000 for 30 years at: 2% will give you $ 18,194 4% will give you $ 33,003 7% will give you $ 80,191 10% will give you $193,581 15% will give you $829,034 And at 20% $10,000 will increase by 34,791% to $3,489,120 in 30 years! Think about that- Three and a half Million vs. Eighteen Thousand! Why does a few points make so much difference? Compound Interest!
Compound Interest Creates a Chain Reaction more Powerful than Nuclear Energy!
During the heyday of Atomic Energy, a reporter looking for a hot story about Nuclear Fission approached Albert Einstein and asked What is the most powerful force on earth? but he was sorely disappointed when Einstein replied, Compound Interest.
Why would one of the most brilliant men who ever lived feel that compound interest was more powerful than Atom Splitting? Simple, splitting an atom releases a huge amount of energy because it creates a chain reaction. Each split releases particles which cause other atoms to split, releasing other particles, causing more atoms to split, etc., etc. But once the fuel is gone the reaction stops. Therefore, although the amount of energy released is huge it is still finite. But in releasing the power of compound interest you can create a chain reaction that literally goes on forever.
The key components of compounding are Time, Consistency and the Rate of Return, so you need to start right away! If you already have a $10,000 nest egg $10 per day plus a $10,000 nest egg drops the time down to 22.9 years but you still need time on your side. Time and ConsistencyThe place to start is here; the time to start is NOW!
Decide to StartOnce you decide to start you are halfway there. The first two elements needed are time and consistency and both are simply a matter of choice. Time machines only exist in movies-
TimeThe only way to get time is to start NOW! Unfortunately, time machines only exist in movies so you cant start yesterday or last week or 30 years ago. You have to start NOW!
ConsistencyIf you get half a million dollars will you quit? Worse yet will you quit at $100,000? Or $50,000 or $25,000 or perhaps never even start at all? The major reason for people failing to reach their goals is they simply quit! If they had just continued a little longer they would have been over the hump and it would have been downhill sailing the rest of the way! That last hump eliminates all but the true winners!
At that rate in a few more years Bob would be a Millionaire But because Bob didnt understand what Steve was doing and how he did it he began to wonder Maybe Steves good luck would run out Or the market would crash Or the world would end Or something and Bob would have nothing. At this point What would you do if you were Bob?
Would you hang in there? And Risk the $100,000.00? (which really only cost you $10,000) Or would you take the money and use it for a nice motor home? Bob chose the motor home. With the swipe of a pen he turned a nice rapidly appreciating asset into a liability. if you dont know why this is a liability you need to read this article:
THE WEALTHY BUY ASSETS THE POOR BUY LIABILITIES THE MIDDLE CLASS BUY LIABILITIES BELIEVING THEY ARE ASSETS By Tim McMahon, Editor www.YourFamilyFinances.com
But back to BobBob chose the motor home and gave up the possibility of ever becoming a Millionaire. Dr. Steve on the other hand turned his investment into well over a Million Dollars and quit his practice and now he watches his investments for an hour or so a day and plays golf the rest of the time. The point of this story is Persistence! Had Bob stuck with Dr. Steve a few more years he could have bought the motor home and had the investments. But he quit a little too soon. He let fear of loss overcome his plan. He wasnt in control (he was letting Steve do all the thinking). He should have had Steve show him how it was done and taken over the investing himself. Persistence is the key to success that most people lack.
We are living in a society that teaches instant gratification. Watch any commercial and what do you see? Someone has a problem, bad breath, or sinus problems or hemorrhoids, or whatever, but less than 60 seconds later they are smiling problem resolved! Unfortunately, real life requires persistence. If you want to lick bad breath you have to use the mouthwash every day! To cure the infection the bottle says, you have to take all of the prescription- dont quit after half just because you are feeling better. The problem will come back and be twice as hard to resolve! Bob had started taking the prescription, was almost over the hump, but now he has an additional payment on his beach house. Making it twice as hard to cure the problem.
Persistence and MoneyIf you really want to retire a Millionaire dont give up and you will be one! In as little as 22.9 years. Or less, if you save more per month or start with a bigger nest egg.
Just Do It!
www.fintrend.com
2005 Reprint info at the end
Downright Lies
The questions YOU should be asking are: How do I know it is Hot? Why is it HOT? Is it getting Hotter or Cooling off? Does the Tipster have anything to gain by giving me this tip?
Looking for Hot Tips is just like begging for a fish. Which lifestyle would you prefer, if given only two options? Would you rather spend each day begging for a fish? Imagine spending all day long on a hot dirty street corner saying Please Sir may I have a fish? Perhaps, after time you would find a generous person who would give you a fish on a regular basis, but what if he died or stopped being generous? Perhaps, you need more than one fish today? Do you want to have to beg day after day? Or, would you prefer to learn how to fish? Then every day you can take your net down to the dock, reach into the water and scoop up a fish. If you want two fish scoop again! If you want to be able to give a fish to the beggar on the corner, scoop again! Thats all there is to it! Which is the better lifestyle? Perhaps by the time you read this, the individual investments in it will be stale, but the methods will last forever. In this report, I would like to Teach You to Fish. Not only to be an ordinary fisherman either but a top 5% fisherman.
Would You like to be the master of your own destiny, Free to choose for yourself? If you are relying on the source of the tip, you are at the mercy of the tipster, you have no control. You have no way of knowing whether the information they are providing is good or bad, you might as well go out and buy a lottery ticket. What you really need is a system that will help you to make your own decisions. Based upon cold hard facts, not on hunches or feelings, or tips. By basing your decisions on a system you will once again be the master of your own destiny, in control of your investment life. You will be the expert and at the mercy of no one.
Most Market participants fall victim to their feelings Most Market participants (I wont call them investors) fall victim to too many feelings. The big two are Fear and Greed. First they fear missing out. Does this story sound familiar?
Someone at a party talks about their hot stock that just went up 20% and everyone wants in on the action. Then you see a story on the same stock in the paper or on TV, so you jump in and sure enough it goes up another 10%. Now you are thinking WOW this is amazing 10% in 3 weeks. Now Mr. Greed begins poking you with his pitchfork and says, you can make 20% too, just like that guy at the party. You begin to think, at this rate, Ill be a Millionaire in only 3.7 years! Then suddenly the stock hiccups, just a little bit but you just know its going to start upwards again. It just has to your future Millions are riding on it! But, by now, this over-hyped dog is falling like a stone. Before you know it, you are down 10% and you cant get out at a loss, (fear again or maybe pride) so you hang on and the loss just gets worse and worse. Until you finally cant stand it any more, so you sell out just as the stock is bottoming and getting ready to rise again. This is not the way to invest! This is the way to line the pockets of the smart investors! In this report I am going to tell you the easy way to average 15%-20% per year for the rest of your life. On our website www.fintrend.com I will show you ways to earn much more than 15% per year (but with a little more work). And on our sister site www.yourfamilyfinances.com I will show you how to save $10 or more per day to start your investment program and other ways to get your nest egg started.
Are you ready to learn how to join the ranks of the top 5% of all investors? The methods in this report are based upon a simple system that is so easy a child can do it, and yet most people dont bother to do it. I have owned stocks since I was a child and have been picking my own stocks since I was a teenager. I began by reading my grandfathers investment newsletters while taking breaks from mowing his lawn. Before long I was buying stocks and earning decent enough returns to put myself through college
and then I began investing in options, sometimes selling covered calls to juice up the returns. But for this report, I am going to show you a simple easy way to earn excellent returns.
Millionaire! That is too long! If you start at age 23 you will have to wait until you are 90 years old!
What can the average investor do, settle for a measly 1 % on a CD from the bank?
NO!
Let your know-it-all neighbor happily earn 1 % on his CD You can be confident in the knowledge that You are safely earning TEN TIMES that amount. Even if you just bought the S&P500 index you could have averaged 10.38% per year over the last 10 years but because of the Tech Wreck years from 2000-2003 you would actually be losing money over the last five years (not counting dividends). If you had bought at the peak in 2000 you would be very near breaking even. If you had purchased Vanguards low load S&P Index fund you would have done almost as well. Because of the low fees your actual return would have been 9.27% and minus 1.85% respectively. Not bad considering that three of those years have been lackluster (that means downright bad in investment talk).
Did you hear that? 9.27% for doing nothing!!! A simple index fund!
By simply buying the index fund, YOU would out perform 90% of all investors. But you would also own the worst performing stocks as well as the best, since by definition an index fund holds every stock in the index. And you would have had to hold through good times and bad. And not buy at the top. Is owning the worst performers all that bad? Actually, owning the worst performers isnt as bad as it first appears. If you own two stocks both priced at $10 and one doubles and one falls to half, you are still even right? Wrong! Your one stock will rise to $20 and the other will fall to $5, so your total portfolio is now worth $25 up from $20. The average price is $25 divided by 2 or $12.50. So you actually made 25%! So if you own the top 500 stocks and half of them decline and the other half rise you should actually come out ahead. And since they are the top 500 stocks in the world, 7 out of 10 will actually be winners in good years.
Remember that every 1% increase in return makes a big difference in the long run, so we cant afford to give up even 1%. The top 5% of all investors consistently earn 15-20% returns on their investments, year in and year out! Our goal is to join them!
Joes Answer: Interviewer: Joes Answer: Interviewer: Joes Answer: Interviewer: Joes Answer: Interviewer:
This will provide a list of the top performing 40 funds over the last 10 years.
At this point we get a chart that looks like this: (Note: I have added the Rank column to make it easier to refer to the list by number)
down or even flat to up slightly during bad years. To help cover for some of the volatility we will be investing in several different funds. Just like a fund diversifies over several stocks, if we can diversify over several well performing funds we should have the best of the best. Then even if one fund has a down year the other funds should make up for it. In order for diversification to work we must be sure to choose funds that invest in different sectors, simply choosing 3 different funds in the same sector will not provide much diversification.
If you have $10,000 to invest you would choose 5 funds and put $2,000 in each fund. If you have $100,000 you would choose between 10 and 15 funds. 15 is probably the maximum you would want above that amount it becomes difficult to track and so even if you had a Million Dollars you would probably just diversify into 15 funds or maybe 20. That is why the title of this report is 15 Quick and Easy Ways to Beat 95% of All Investors. We are going to choose 15 funds that earned 15% or more over the last 10 years and you will very likely out perform 95% of all investors over the next 10 years.
especially good to the electronics industry or oil or whatever. So if you eliminate duplicate sectors and just choose the first 15 different sectors you would probably do well. As I said earlier, for diversification purposes you may want to include the S&P500 index as one of your funds, even though more than 40 other funds out performed it over the last decade. By clicking on the Fund symbol you can find more detailed information about each fund. Remember you only need to do this once every several years, so spend some time and do it right! (You dont need to keep the funds for 30 years but you dont want to be changing all the time either. Perhaps you want to look over the newest list every New Years Day and readjust your allocations some.) This report is not meant to be personal investment advice but purely for educational purposes. You will ultimately have to make your own decisions and live with the consequences. At this point, you have enough information to outperform 90% of the investors out there. The choice of which funds to include in YOUR list becomes a very personal choice. I can only give you some broad guidelines. How you choose will determine whether you make it to the 95% level.
Morningstar Rating and for Bear Market Decile, and Load. Then using the sort utility on my spreadsheet I sorted based on Morningstar rating first, then on Bear Market Decile and finally on Load. The funds that meet our primary criteria I have listed their sector. Our secondary choices (because they are load funds have a question mark after the sector). Of course this list will change with time (sometimes drastically) so it pays to look at the list once a year or so and decide on any changes you might want to make. Even though this list is based on 10 year performance it is heavy in Real Estate, and Natural Resource Funds. But if you look at the Sectors we have on our A list it is fairly well diversified and most almost all the funds on the list are Bear Market resistant. So we have come up with a Realty Fund, a Micro Cap, Natural Gas, Brokerage, another Natural Gas, Insurance, Energy and a Mid-Cap Value Fund. So the only choice we have to make is which Natural Gas Fund we prefer. In this case, Fidelity Select Energy Service only has a Morningstar Rating of 2 and a poor performance during Bear Markets so we should go with Fidelity Select Natural Gas. This gives us 7 funds. What do we do if we need more than 7 funds? We have to lower our standards a bit for the sake of diversification. So we would either go with the load funds or continue further down the list. Notice that there is not a single large Cap fund on the list. So we may have to continue down or include the Vanguards S&P500 index fund.
5 Year Annual return 20.31 27.13 32.37 20.63 5.68 28.73 5.68 5.18 11.36 30.73 9.94 16.69 12.52 21.34 10 Year Annual return 23.46 23.38 22.7 21.63 21.34 21 20.91 20.48 19.93 19.84 19.26 19.14 18.84 18.84 38.42 28.75 18.81 2 5 Bear Market Decile Rank 4 2 1 2 8 1 5 10 5 1 3 2 5 1 Morningstar Overall Rating 5 5 5 5 4 5 4 4 4 5 4 4 2 5
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Ticker WMICX BRUSX SSGRX GMCDX BRAGX CGMRX CVGRX FIMPX SSRAX BRUFX MVALX FSTEX FSESX VGENX EUEYX
Name Wasatch Micro Cap Bridgeway UltraSmall Company BlackRock Global Resources Inv A GMO Emerging Country Debt III Bridgeway Aggressive Investors CGM Realty Calamos Growth A First American Small Cap Growth BlackRock Aurora Inv A Bruce Meridian Value AIM Energy Inv Fidelity Select Energy Service Vanguard Energy Alpine U.S. Real Estate Equity Y
YTD Return 8.8 5.66 39.14 11.81 9.29 18.92 9.29 5.14 1.8 5.33 0.18 41.5 38.99 35.09 4.83
3 Year Annual Return 22.09 36.89 54.2 23.92 21.83 45.68 21.83 19 20.49 44.05 16.24 36.45 28.59 37.93
Load/Closed Closed Closed 5.75% Closed Closed None 4.75 1 Mill Min 5.75 None None Closed None 25K Min None
Sector
Realty Growth?
Micro Cap
Nat Gas
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
FSLBX VGHCX UMESX RSPFX MSUSX NAGPX KSCVX FSNGX PRGNX FSPCX NBGNX FSENX HWSIX PHRAX DFAVX SACPX DMCVX RYLPX DFSVX ESPAX REACX FLPSX MUHLX JSIVX ACREX
Fidelity Select Brokerage & Investmnt Vanguard Health Care Excelsior Energy & Nat Resources RS Partners Morgan Stanley Inst US Real Estate A Nicholas-Applegate Intl Growth Opp I Keeley Small Cap Value Fidelity Select Natural Gas Jennison Natural Resources B Fidelity Select Insurance Neuberger Berman Genesis Inv Fidelity Select Energy Hotchkis and Wiley Small Cap Value I Phoenix Real Estate Securities A DFA U.S. Small Cap Value II Salomon Brothers Capital O Dreyfus Midcap Value Royce Low-Priced Stock Inv DFA U.S. Small Cap Value Evergreen Special Values A American Century Real Estate Inv Fidelity Low-Priced Stock Muhlenkamp Janus Small Cap Value Instl Van Kampen Real Estate Secs A Group average of 4425 funds
26.23 10.86 34.46 8.8 14.14 12.1 9.7 33.79 36.83 14.47 13.81 41.56 7.57 9.85 5.92 6.06 3.67 3.72 5.64 8.52 11.98 4.47 4.25 6.57 13.2
24.36 14.71 36.9 34.15 30.13 27.24 26.89 37.25 36.53 17.94 21.34 33.63 32.75 27.07 29.38 21.61 24.74 20.11 29.02 21.63 27.63 21.63 24.72 19.42 29.07
8.34 6.22 15.46 24.3 20.6 4.47 17.75 13.99 23.62 9.66 15.65 13.73 26.58 20.65 19.24 5.81 8.16 12.7 18.97 15.72 20.86 17.5 12.45 12.81 19.57
18.67 17.83 17.71 17.43 17.3 17.04 16.84 16.68 16.63 16.6 16.55 16.43 16.39 16.21 16.18 16.11 16.08 16.05 16.02 16.02 15.98 15.94 15.92 15.91 15.89 6.83
9 1 2 1 1 5 2 1 1 1 2 2 2 1 3 7 9 6 3 2 1 1 7 3 1
4 5 4 5 5 4 5 4 4 4 5 4 5 3 4 4 3 3 4 4 4 5 4 3 3
None Closed None Closed $500K Min $250K Min 4.50% None 5% Defer None Closed None Closed 5.75 $2 Mil Min Closed Closed Closed None Closed None Closed None Closed 4.75%
Brokerage
Insurance
Energy
Individual EvaluationNext I would like to look at some of our top picks and evaluate them individually to give you an idea about how to choose from the list.
3 Year Annual Return 45.68 5 Year Annual return 28.73 10 Year Annual return 21 Bear Market Decile Rank 1 Morningstar Overall Rating 5
Rank 6
Ticker CGMRX
Load/Closed None
Sector Realty
The first stock on the list is CGM Realty we can see that this year alone it has produced almost 19% with a 10 year annual average of 21%... very good it also has a 5 star rating, no load and with a bear market decile rank of 1, so it holds up even when the stock market doesnt. Which makes sense of course, because it is tied to the real estate market not the stock market. But with the recent talk about a Real Estate bubble do we want to be invested in Real Estate? The answer is probably still yes, because that is the whole point of diversification. We arent trying to guess what is going to do well when we are trying to pick funds with good track records over the long term. However if the Real Estate market is falling at the moment it would be prudent to wait for lower prices before buying.
5 Year Annual return 10 Year Annual return Bear Market Decile Rank Morningstar Overall Rating
Rank
Ticker
YTD Return
Load/Closed
Sector
16
FSLBX
26.23
24.36
8.34
18.67
None
Brokerage
The next fund Id like to look at is Fidelity Select Brokerage it is almost the exact opposite of CGM Realty it has a 4 star rating and does terrible in a Bear market. Obviously being a brokerage investment that would make sense. But even with the tech wreck in the first 3 years of this millennium it still has averaged 18.67% over the last 10 years and even more remarkably 8.34% over the last five years (when three of them were part of the wreck!) So long term we might still use it to help balance out the portfolio. For simplicitys sake lets assume we only had two funds in our portfolio over the last 10 years. If we put half in CGM Realty and half in Fidelity Brokerage what would our results be? Name CGM Realty and Fidelity Brokerage 1 Year 22.57 3 Year 35.03 5 Year 18.53 10 Year 19.83 Decile NA Morningstar NA Load NA
Note: This is just the average of the two funds, not bad but you can see how it tends to balance out more evenly the more funds you add.
To diversify even further you might add some other funds that have a floor built in which if used properly actually guarantees that you cant lose money. See our article A Risk Free Way to Invest in the Stock Market. At : http://fintrend.com/ftf/Stock_Market/Mitts.asp
The final question is when and how often should you reevaluate your selections and what criteria should you use to change positions? Obviously if we are in for the long haul we dont want to jump ship just because a fund has a bad year. But if the ten-year performance falls out of the top 40 that would certainly be an indicator that there is a problem and you would probably want to switch out. Also if there is a radical shift in fund management that would be a good indicator that performance may change. Or if it is obvious that a certain sector is headed for a bad spell you might want to reevaluate your positions. Please visit our sites: Financial Trend Forecaster for information about current trends in the market at http://www.fintrend.com also http://InflationData.com for information about inflation. And http://www.YourFamilyFinances.com for information on managing your family finances, saving, investing, college, insurance, budgeting, etc. Have you found this report helpful? Please send any comments or suggestions. Contact me at http://fintrend.com/feedback.htm Tim McMahon, Editor Financial Trend Forecaster
2005 All Rights ReservedReprint information- You may freely copy small portions (up to 2 paragraphs) of this report as long as credit and a link to www.fintrend.com is included. Full Document Resale and Affiliate rights are available.