A number of years ago I had the opportunity to attend a seminar with David Bach as the keynote speaker. He made great points on the fact that Canadians are not saving enough. I especially liked his “Latte Factor” to savings.
That said, the chart provided in the article below is yet another example of media bastardizing good financial planning concepts with very unrealistic expectations, especially when using “common wisdom” financial planning concepts such as those that propagate investments in stocks, mutual bond, ETF’s and bonds. The chart assumes you’re starting with zero dollars invested. It also assumes a 12% annual return.
http://www.businessinsider.com/build-a-million-dollar-retirement-account-2015-7
Heck, the authors are even blatantly admitting to the fact that their estimates are bogus!
“While the numbers in the chart below are not exact (for simplicity, it does not take into account the impact of taxes, and 12% is a high rate of return), they give you a good idea of how coming up with a couple of extra dollars each day can make an enormous difference in the long run, particularly if you start saving at a young age.”
I am sorry to burst their bubble, but consistently achieving 12% return rates using “common wisdom” investing we have all been taught, especially today where yields on most “high interest” savings account are less than 1% and where stock volatility has been increasing substantially as of late (read: higher risk), is absurd.
Similarly, not considering taxes or inflation, which the article does not even take into account, is quite frankly unrealistic and irresponsible.
20 years ago, 8% annual returns was the magic number all financial institutions and advisers were using when advising clients to purchase mutual funds as “THE” investment vehicle that would supposedly achieve their clients goals of financial freedom. At least this was based on some semblance of historic data that supposedly pertained to long term US stock market returns at that time.
Of course, those same financial institutions and advisers conveniently failed to mention that mutual fund management expense ratios, front end, back end, trailing and other transaction fees were more likely to make them rich instead of their clients.
Unfortunately I, along with the vast majority of Canadians, have been hoodwinked with this so called “common wisdom” as a the predominant way to achieve our goals and dreams of financial freedom. We have been lied to, we have been sold a false bill of goods!
John Bogle, the founder of Vanguard one of the biggest mutual fund companies in the world, blew the lid on the mutual fund industry by spilling the beans that over the long term those fees could eat up 63% or more of your returns!
The Globe and Mail article “The ‘tyranny’ of fees: How costs kill investment returns” below is an absolute must read for anyone still investing or thinking of investing in mutual funds today.
So is it possible to earn 12% returns on our investments today and realistically achieve our goals and dreams of financial freedom without high risks and fees? ABSOLUTELY!
Contact me to learn how.
