- Are you ready to have your mind blown
by some eye-opening statistics about investing?
Maybe I'm building this up a little too much
but these numbers are pretty cool.
I'm going to show you nine surprising facts
that will change the way that you approach your investments
from how to lose $1 million as an average investor
to why some of you watching this are going to end
up with less money than you think
to how you can make a few simple changes to have more
than double the amount
of money that you originally planned for.
These stats are going to shock you and hopefully
inspire you to rethink your investment strategy.
So take a quick sip of water, do 10 pushups
and let's get started.
To prevent myself from having to repeat myself
and annoy you when I touch on each fact.
Here is my blanket disclaimer.
The past does not dictate how things will play
out in the future, but my dog
Molly will be just as cute in the future as she is today
so hit that thumbs up button to help support her.
A scorecard is done every year to compare actively
managed funds versus index funds
and every single year it doesn't look good
for actively managed funds.
Over 20 years, 90% of US stock-based actively
managed funds underperform their comparable index funds.
To make it worse, only 30%
of actively managed funds survive over that time period.
The other 70% performed so poorly
that they had to shut down the fund.
International funds aren't any better.
Over 20 years, 90% of actively managed funds
underperformed their comparable index fund.
Only 32% of actively managed funds survived
over that time period.
The other 68% were so bad at what they did
that everyone stopped inviting them to birthday parties.
Actively managed bond funds are even worse.
Over 15 years
98% underperformed their comparable index fund.
To top it off, only 46%
of those actively managed funds survived
over that time period.
The other 54% had to shut down
in hopes that everyone would just forget they even existed.
The takeaway, you would never continue being a customer
of a business where there was a 90% chance
that they would mess up your order.
So can we just stop wasting our time with anything other
than index funds or ETF based index funds?
I'll have videos for everything you need to know
about investing this way down in the description below.
Most people are getting raises every year or a couple
of years.
For those of you who don't, this is an issue
that needs addressed as soon as possible.
Whenever you receive one, always use them to your advantage.
Sure, spend some of it on things to improve your life once
that bad debt is paid off, but take the majority of it
and increase your investment contributions.
If you make $70,000 per year, the difference
between contributing 4% versus working up
to contributing 10% of your salary is the difference
between having $481,000 versus $1.2 million
after 35 years
It's a good reminder
that we all have the opportunity to be millionaires
if we'd like.
Did you know that the average lifespan
of companies in the S and P 500 is only 18 years?
This is why I laugh when people tell me they
buy the largest stocks
in the S and P 500 like Apple, Microsoft
and Amazon because they're quote unquote safe.
Yes, they're safe right now
but those companies will shrink one day
so you better have an exit plan
or just buy index funds and move on with your life.
Look, I don't like to play favorites
because I love all of the data that I've shown you so far
but my favorite one is this spreadsheet that I put together
for the S and P 500 going back 97 years.
Here are some interesting
and not so obvious things that every investor needs to know.
Thanks to Flexi Spot for sponsoring this video
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One of the biggest financial crimes
that I see on a regular basis is when
people expect an average annual return of 12% going forward.
These people who are telling you this need to be arrested
and thrown in jail immediately, let me show you why.
Look, I understand how they came up with this number
so maybe instead of putting them in jail, let's just
make 'em sit in the corner
for a couple of days to make 'em think about
what what they did.
They get this number by looking
at the average annual returns since 1926.
Doing that comes out to 12%
which is why they base their future returns on 12%
but the first problem is inflation.
Cool.
You can tell me how much y'all have in future dollars
by using 12%, but that number is irrelevant
if I can't quantify how much that actually is
in today's terms.
I can barely quantify
what my life is gonna look like next week
let alone 30 years from now.
We should instead look at this number after inflation.
I know that number won't look as big and sexy as 12%
but at least it's a little bit more honest
and easier for us to understand how much we'll actually have
in the future based on today's dollars.
The second problem that I have with this 12% is the fact
that it's over a 97 year period.
Newsflash, but 99% of people aren't investing for 97 years.
I think a better way to measure this is
enrolling periods based on timeframes most
of us will be investing for, so I put together
rolling averages for timeframes of 5, 10, 15, 20
and 30 year periods adjusted for inflation
going all the way back to 1926.
Here are the average returns
for all of those rolling periods.
It's wild how they all end
up pretty darn close to each other.
If you are someone who is using the past
to project your future returns
around 8% would probably be a more realistic number to use
as opposed to 12%.
When projecting my future returns
I personally like to be a little bit more conservative
and go a little bit lower than 8%,
just in case I end up on the wrong side of luck
which I will show you what the wrong side
of luck looks like in just a minute.
These average annual returns can be a little
misleading though, especially when we're talking
about shorter time periods like one, five and 10 years.
Even though the averages for each was 8%.
When we dig into the details a little more
we see that there were time periods
of investing where you ended up with a negative return.
As you can see for the one year returns
there's a little mixture between up years and down years.
Since 1926, there are 97 one year periods.
Of those 97 years, you ended
with a negative return during 22 of them.
When we zoom out to five year rolling periods over the past
to 97 years, the story starts to change a little bit.
There are 93 five year rolling periods since 1926.
During those time periods, you would've ended
with a negative return for 16 of them.
Moving out to 10 year rolling periods,
we see that there have been 88,
10 year rolling periods since 1926.
You would've ended up
with a negative return during eight of those time periods.
If I can fit them all on screen together
I'm going to put up the 15, 20
and 30 year rolling periods because as you can see
you would've never ended any of them with a negative return.
This is just another case for why investing
for the long term is extremely important, and by long term
I'm not talking five or 10 years
we're talking about 15 plus years.
Also, keep in mind that these numbers are only
for people who invested in the S and P 500.
If you were out there messing around
with actively managed funds or tilting your portfolio
in other directions that underperformed
then your returns would've been a lot lower.
Refer back to the first point
of this video where the majority of actively
managed funds underperform its index fund benchmark.
Something else to be mindful of when investing that is very,
very rarely talked about is the fact
that timing is everything and a lot
of the outcome is out of your control.
This is the whole luck factor
which is why I personally project a return that is less
than the historical 8% per year.
Here's what I mean.
You can be a very responsible investor who is investing
for 20 years starting today
and your returns could be much higher
or lower than the average person who is investing
for 20 years starting in a different year.
Check this out.
Here are the inflation adjusted returns
for 24 different 20 year rolling periods.
If you happen to be investing
during this 20 year rolling period
then your average annual returns would've been 9.46%
but if I had started investing
during a 20 year time period that started four years later
then my average annual returns would've only been 5%.
You would've beaten me by 4.5% just
because of the randomness, timing and luck that is life.
Maybe I just happened to be born four years
after you because my parents didn't want to have children
until they were financially stable
and maybe I didn't start until four years later
because I was only making responsible life decisions.
Life is so stinking random and out of your control.
You could be doing all of the right things in life
but because you just happened to invest a few years earlier
or later, your returns are a lot lower than someone else.
I'm not telling you this
or showing you this to discourage you from investing.
I'm showing you this because it's one
of the least talked about topics
in investing that is extremely important to understand.
It's also why I promote investing as much money as possible
because even if you are
that one unlucky person who gets lower returns
even after doing the right thing
at least you made up for those lower returns
by investing a larger chunk of money, and
if you happen to be one of the lucky ones who invests
at a time period where returns are above average
then you can reduce how much you are investing
as you get closer to retirement.
While you're crying because you invested too much money
you can wipe away those tears
with all of that extra money that you have.
Boohoo, you invested too much money
so you have too much money.
Such a sad thing.
Our human brains are just not cut
out to be patient as an investor,
patience is one of the most powerful qualities
that we all can have because the better we become at it
the more our money can grow through compound interest.
I mean, just look at this graph
of someone who invests $1,000
per month with an average annual return of 8%.
It takes 17 years for their contribution amounts to
equal the amount that they've earned in compounded gains.
This is why it's so darn important to get as
much money invested as soon as possible
so that the money can start working for you.
If you invest money
and continue to check it for the next five years
then the progress is going to look so small
which can be really frustrating, but always remind yourself
that you are not investing for a five or 10 year payoff.
You are investing for that 20 plus year payoff.
Another thing to remember is
that our results are a lagging indicator
of what we did in the past.
Think about your financial situation right now.
Where you are at and what you do
or don't have is a lagging indicator
of the combined actions that you've taken
in your life up until this point.
So think about what you want your financial life to look
like in 15 or 20 years and work backwards
to what you need to do between now and then to
make it happen, because this point in time right
now is going to be that future lagging indicator.
It's a lot easier than you think
for the average investor to lose 1 million.
The financial industry is full
of professionals that just want to take money away
from you bit by bit without you even noticing.
A company like Edward Jones just wants to
charge you a 2% fee to let them manage your money for you.
It's that simple.
I mean, 2% doesn't even sound too bad, right?
Heck, they don't even say it's a full 2%.
They break it down among a ton
of different expenses to make it seem even more acceptable.
They're going to maybe charge you a small 0.25%
for a sales load fee on everything they buy for you.
Another 0.25%
as a redemption fee when they sell investments for you.
Another 0.50% for the expense ratio because each
of the funds that they have you invested in need to be paid
and because they're managing your money every year
they're going to charge you 1%, all totaling 2%
but if you were someone who invested at $10,000
per year at an average annual return of 8% for 40 years,
then you'd be paying a little over 1.1 million in fees.
You, of course, wouldn't notice how much you were paying
in fees because no money is actually coming
out of your bank account.
This isn't like when you go pay
for a coffee and have to hand over money that you have.
It's coming out of the returns from your investment account
which is a lot more difficult to quantify as time goes.
On screen, I'll show a quick guide
so that you can understand how much different
fees will reduce your portfolio's value by
so when you see any investment fee out there
then you can be reminded of how much
in value it's really going to cost you.
Something like an Edward Jones charging 2%
would reduce the value of your investment account by 55%.
Half of your hard-earned money just disappears.
Fees always have and will continue to always matter.
Do not let anyone try to convince you otherwise.
Very, very, very few high fee investment
opportunities are actually worth it.
So when it comes time to work
with a financial planner or advisor
if that is what you choose to do
at some point in the future, always go with one
that is a true fiduciary, who charges an hourly fee.
Yeah, they might seem expensive on the surface
since some of them charge between 200 and $500 per hour
but when you compare it
to the ones who charge you an ongoing 2% fee
that hourly rate seems like a bargain
compared to paying over $1.1 million in fees.
You would have to work
with an hourly financial advisor charging $200
per hour for 5,500 hours to ever even come close
to paying them $1.1 million in fees.
Now put together a special investing playlist for you
which you can check out to your left next.
Down in the description below
our more resources and playlists to help
with all of your personal finance and investing needs.
I'll see you in the next one, friends.
Done.