Simple Ways to Double Your Investment Returns
They say the internet changed everything. Well, finally, that change has come to basic investing. It is now easy to double your returns from just a decade ago.
For instance, doubling your stock broker’s returns is easy, but almost no one does it.
And no, this is not clickbait headlines—at least mathematically (and by the way, with the best evidence-based investing), it is possible just in a few years to double your returns using new simple strategies.
So, how can you do better by keeping investing simple?
What is a Stock Broker?
First off, what is a stock broker?
A stock broker has an office in one of those big buildings downtown, in a bank, or maybe someone more local. They have several different business models (AUM, commission, a mix of both or worse) and are fiduciary to the company they work for. Edward Merrill Stanley is their boss, but the actual boss are the stock owners who get paid every time a broker squeezes a Nickle out of you.
But perhaps that is too much. A stock broker is the most common way middle America accesses the stock market. It is how someone who has not sought specific knowledge about how to do so accesses the economic growth behind the American ethos (reflected in the prices of the publicly traded companies).
You might have them help you with insurance or with your employer plan. But I’m talking about someone you give your after-tax money to invest. You have paid the bills and have extra. So you want to invest in stocks. How can you double the returns you get personally vs. giving the money to your local stock broker?
Double the Money of Commissions
As a simple example, it used to be they sold A-shares which are loaded mutual funds. Not long ago, this was “good” investing because there were no alternatives to access the market.
This is the commission model and is still how insurance agents are paid, but it is not common for stock brokers anymore because they can make more money by charging AUM.
Ok, you invest $1000 once in an A-Share with a 5% load (charge), or you invest in a no-load fund (which most funds are these days). By the way, I’m ignoring ongoing charges here, such as 12-b1 fees and expenses. But if you start with $950 vs. $1000, how long does it take to double the growth given 10% annual returns?
I’m not going to do the math, but it takes a long time.
Here is a super important point I’m trying to make: sometimes it is better to pay once than never again. The implication: sometimes, the old-fashioned commission model is better for you than what your stock broker is doing to you.
Double the Returns of AUM
More likely than not, your stock broker charges you an asset under management fee (AUM fee).
This is because the money disappears from your account, so there is no pain in writing a monthly or yearly check, and it is also “sticky.” Sticky means it is hard for you to get away from them once they have you.
Say, on average, you pay 1% for a global market portfolio of low-cost, diversified ETFs.
Oh, and by the way, most stock brokers do much worse than this evidence-based, low-cost portfolio. Instead, they make individual stock selections, and market timing based upon proprietary research or try to get you into non-traded REITs or structured products.
Anyway, if you are “just” losing 1% a year, how long does it take for your stock broker to get 50% of your money? That is, if you have lost 50% of your money to your stock broker, by not using one, you double your money.
The answer is not 50 years because of compounding interest.
How Long Does it Take to Double Your Returns?
So, how long does it take to double your returns?
You can double their returns in about ten years, but you must be a smart investor. What do I mean by smart? You have to have money to invest and invest the money. And not only that, you have to invest it correctly. Say, just buy VTI and then sell it when you need it in 30-50 years.
But if you ask a stock broker, they will tell you that you are much better off with them than on your own. You don’t know how to buy VTI because it is their job to complicate and obfuscate.
You will sell when the market crashes. Oh, the market always crashes; that is a feature, not a bug. And not something you should be scared of during accumulation but something you should celebrate.
Or something else that will convince you to give them sticky money that makes the stockholders of their company richer. You might as well buy the investment company your broker works for!
The point is the technology is here for you to invest without the middle man. Remember, the middleman is the one who has all the nice buildings downtown. Stop paying their rent!
Conclusion—How to Double Your Returns
So, in conclusion, you can double your returns if you buy VTI when you have money and then don’t sell it. Investing is that easy now.
This is the least expensive way to get better returns than your stock broker. Evidence shows that it is a sucker’s bet to pick active funds after fees.
Remember, everyone gets the average returns of the stock market. That’s what it means to be an average.
But if you are in passive funds (like VTI), you actually get stock market returns.
If you are in active management (like with a stock broker), on the other hand, you also get stock market returns minus the expenses.
Both active and passive strategies get market returns, but when you use a stock broker, you lose the fees you pay now and the compounding growth those fees would have grown to over the decades.
Why is it so hard to change the narrative about investing when it is so easy to double your stock broker’s returns? Because it pays them well!
Simple Ways to Double Your Investment Returns
They say the internet changed everything. Well, finally, that change has come to basic investing. It is now easy to double your returns from just a decade ago.
For instance, doubling your stock broker’s returns is easy, but almost no one does it.
And no, this is not clickbait headlines—at least mathematically (and by the way, with the best evidence-based investing), it is possible just in a few years to double your returns using new simple strategies.
So, how can you do better by keeping investing simple?
What is a Stock Broker?
First off, what is a stock broker?
A stock broker has an office in one of those big buildings downtown, in a bank, or maybe someone more local. They have several different business models (AUM, commission, a mix of both or worse) and are fiduciary to the company they work for. Edward Merrill Stanley is their boss, but the actual boss are the stock owners who get paid every time a broker squeezes a Nickle out of you.
But perhaps that is too much. A stock broker is the most common way middle America accesses the stock market. It is how someone who has not sought specific knowledge about how to do so accesses the economic growth behind the American ethos (reflected in the prices of the publicly traded companies).
You might have them help you with insurance or with your employer plan. But I’m talking about someone you give your after-tax money to invest. You have paid the bills and have extra. So you want to invest in stocks. How can you double the returns you get personally vs. giving the money to your local stock broker?
Double the Money of Commissions
As a simple example, it used to be they sold A-shares which are loaded mutual funds. Not long ago, this was “good” investing because there were no alternatives to access the market.
This is the commission model and is still how insurance agents are paid, but it is not common for stock brokers anymore because they can make more money by charging AUM.
Ok, you invest $1000 once in an A-Share with a 5% load (charge), or you invest in a no-load fund (which most funds are these days). By the way, I’m ignoring ongoing charges here, such as 12-b1 fees and expenses. But if you start with $950 vs. $1000, how long does it take to double the growth given 10% annual returns?
I’m not going to do the math, but it takes a long time.
Here is a super important point I’m trying to make: sometimes it is better to pay once than never again. The implication: sometimes, the old-fashioned commission model is better for you than what your stock broker is doing to you.
Double the Returns of AUM
More likely than not, your stock broker charges you an asset under management fee (AUM fee).
This is because the money disappears from your account, so there is no pain in writing a monthly or yearly check, and it is also “sticky.” Sticky means it is hard for you to get away from them once they have you.
Say, on average, you pay 1% for a global market portfolio of low-cost, diversified ETFs.
Oh, and by the way, most stock brokers do much worse than this evidence-based, low-cost portfolio. Instead, they make individual stock selections, and market timing based upon proprietary research or try to get you into non-traded REITs or structured products.
Anyway, if you are “just” losing 1% a year, how long does it take for your stock broker to get 50% of your money? That is, if you have lost 50% of your money to your stock broker, by not using one, you double your money.
The answer is not 50 years because of compounding interest.
How Long Does it Take to Double Your Returns?
So, how long does it take to double your returns?
You can double their returns in about ten years, but you must be a smart investor. What do I mean by smart? You have to have money to invest and invest the money. And not only that, you have to invest it correctly. Say, just buy VTI and then sell it when you need it in 30-50 years.
But if you ask a stock broker, they will tell you that you are much better off with them than on your own. You don’t know how to buy VTI because it is their job to complicate and obfuscate.
You will sell when the market crashes. Oh, the market always crashes; that is a feature, not a bug. And not something you should be scared of during accumulation but something you should celebrate.
Or something else that will convince you to give them sticky money that makes the stockholders of their company richer. You might as well buy the investment company your broker works for!
The point is the technology is here for you to invest without the middle man. Remember, the middleman is the one who has all the nice buildings downtown. Stop paying their rent!
Conclusion—How to Double Your Returns
So, in conclusion, you can double your returns if you buy VTI when you have money and then don’t sell it. Investing is that easy now.
This is the least expensive way to get better returns than your stock broker. Evidence shows that it is a sucker’s bet to pick active funds after fees.
Remember, everyone gets the average returns of the stock market. That’s what it means to be an average.
But if you are in passive funds (like VTI), you actually get stock market returns.
If you are in active management (like with a stock broker), on the other hand, you also get stock market returns minus the expenses.
Both active and passive strategies get market returns, but when you use a stock broker, you lose the fees you pay now and the compounding growth those fees would have grown to over the decades.
Why is it so hard to change the narrative about investing when it is so easy to double your stock broker’s returns? Because it pays them well!
Originally Posted in fiphysician.com