Why Many Investors Keep Fooling Themselves
- Market returns advertised by financial advisors and money managers are higher than the historical effective net returns.
- When surveyed, leading financial advisors state that they expect net returns of 6 to 9%, while the historical effective rate since 1926 is just under 4%.
- To calculate the effective net rate, inflation, taxes and expenses need to be deducted.
- When investment managers were asked what an acceptable guaranteed net-net-net rate of return would be for their assets, answers range from 0.5 to 4% - significantly less than advertised market returns.
Takeaway: Make sure to use the net-net-net rate of return to realistically determine what your needs are in terms of savings and investing for your future.
Source: Jason Zweig at Wall Street Journal
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