@johnadamsyt You are correct, it's absolute nonsense which is what the video is pointing out. Annualized compounding rate of return is also nonssense since it is impossible to receive true compounding in the markets. The only thing that matters is your Real rate of return. That's the return you receive, which will usually be far less than the fictional annualized rate of return
@ergs22 Yes you are correct, real rate of return should be the return on which one should focus. However, the real rate of return is not the "return you receive", it's the return adjusted for inflation from the nominal return you receive, and the nominal return is the "Annualised compounding rate of return" as I first mentioned.
@Chrisfs59 Real rates of returns actually work as the upset guy in the video claims, this is why when we look at our statements they never reflect those rosy "average rates of returns" that we never seem to receive. Mutual fund averages are what they are, we need to understand what's happening to our money. Read John C. Bogle's "The Search for the Soul of Capitalism" He is the founder of Vanguard and he explains in hard numbers how fund managers take 20 to 80% of our gains.
@ergs22 a mutual fund isn't allowed to quote arithmetic means of annual averages, they are regulated by the SEC and have to quote geometric returns. So if a mutual fund went up 100% year 1 and down 50% year two they would have to quote the 2 year average as 0%. So if a mutual fund is able to put in print that they averaged a 6% return over a certain time then the fund actually did grow on average 6% a year as all this is reviewed by FINRA and the SEC.
@brendanwhite45 "So if a mutual fund went up 100% year 1 and down 50% year two they would have to quote the 2 year average as 0%" That doesn't even make sense. It's down 50% from the end of the first year gain not it's original point. They quote annualized average rates of return all the time, you can't pick up a prospectus without finding one. Point is as the vid illustrates, this has nothing to do with the investors real rate of return. We must understand the difference as it relates to $
@ergs22 No, what I'm saying is that what is quoted as returns IS actual compound returns. An advisor wouldn't quote 25% annualized returns over 4 years if the money didn't grow by 1.25^4.
Markets have averaged 8% annual compound returns over 200 years; if you dollar cost average in over your lifetime you will meet and exceed your retirement goals.
@Thalo24 That's the whole point - what is quoted IS actual returns but they ARE NOT real rates of returns. If you dollar cost averaged your money into the markets and the markets averaged 8%, you will not have received those returns because your money cannot truly compound in the markets, it is mathematically impossible for money to compound in a vehicle that fluctuates - all gains must be locked in. So you will absolutely not meet and exceed your retirement goals if the timing isn't right
Historical fund returns are not quoted as arithmetic means, they are geometric (incorporates compounding). If it truly had a 25% annualized return over 4 years then $10,000 would have grown by 10,000 x 1.25^4. If its returns were as they are in the video, the annualized return would be the 4th root of (2 x .5 x 2 x .5) minus 1, which equals 0.
@Thalo24 Exactly, yet we are led to believe that these returns equate to real returns on our investment and they do not. This is why when we were told to dollar cost average into the market at a certain age, and get an 6 - 8% return in the markets, we would have 1 or 2 million when we retire. We are waking up to the fact that this isn't happening because it is mathematically impossible for our money to compound in the markets, given that all gains and principal cannot be locked in.
No one is averaging averages my friend just clearly explaining the difference between average annualized rate of return and the investor's real rate of return on their money. It's actually pretty clear for those willing and able to comprehend, and not so clear for those who continue to enjoy the refreshing taste of Wall Street Kool-Aid. Peddling books? - that one gave me a good laugh - thanks and be well
you are a moron...you CAN'T average averages...a funds 1/5/10 year return are the actual funds rate of return- please stop spewing nonsense and peddling books
This has been flagged as spam show
To hear what it's like working at Merrill Lynch search YouTube for "Merrill Lynch PMD"
MerrillLynchPMD 1 week ago
"an army of newspapers, planners and salesmen running around perpetuating financial nonsense......" Perfect!
investoradvocate 2 weeks ago
Average annual rates of return is nonsense. The figure one should be looking at is the "Annualised compounding rate of return".
johnadamsyt 3 months ago
@johnadamsyt You are correct, it's absolute nonsense which is what the video is pointing out. Annualized compounding rate of return is also nonssense since it is impossible to receive true compounding in the markets. The only thing that matters is your Real rate of return. That's the return you receive, which will usually be far less than the fictional annualized rate of return
ergs22 3 months ago
@ergs22 Yes you are correct, real rate of return should be the return on which one should focus. However, the real rate of return is not the "return you receive", it's the return adjusted for inflation from the nominal return you receive, and the nominal return is the "Annualised compounding rate of return" as I first mentioned.
johnadamsyt 3 months ago
Mutual fund averages don't actually work as the upset guy in the video claims.
Chrisfs59 4 months ago
@Chrisfs59 Real rates of returns actually work as the upset guy in the video claims, this is why when we look at our statements they never reflect those rosy "average rates of returns" that we never seem to receive. Mutual fund averages are what they are, we need to understand what's happening to our money. Read John C. Bogle's "The Search for the Soul of Capitalism" He is the founder of Vanguard and he explains in hard numbers how fund managers take 20 to 80% of our gains.
ergs22 4 months ago
@Chrisfs59 Also check out Be The Bank Tutor dot com to learn more Thanks for watching my vid
ergs22 4 months ago
@ergs22 a mutual fund isn't allowed to quote arithmetic means of annual averages, they are regulated by the SEC and have to quote geometric returns. So if a mutual fund went up 100% year 1 and down 50% year two they would have to quote the 2 year average as 0%. So if a mutual fund is able to put in print that they averaged a 6% return over a certain time then the fund actually did grow on average 6% a year as all this is reviewed by FINRA and the SEC.
brendanwhite45 7 months ago
@brendanwhite45 "So if a mutual fund went up 100% year 1 and down 50% year two they would have to quote the 2 year average as 0%" That doesn't even make sense. It's down 50% from the end of the first year gain not it's original point. They quote annualized average rates of return all the time, you can't pick up a prospectus without finding one. Point is as the vid illustrates, this has nothing to do with the investors real rate of return. We must understand the difference as it relates to $
ergs22 7 months ago
@ergs22 No, what I'm saying is that what is quoted as returns IS actual compound returns. An advisor wouldn't quote 25% annualized returns over 4 years if the money didn't grow by 1.25^4.
Markets have averaged 8% annual compound returns over 200 years; if you dollar cost average in over your lifetime you will meet and exceed your retirement goals.
Thalo24 9 months ago
@Thalo24 That's the whole point - what is quoted IS actual returns but they ARE NOT real rates of returns. If you dollar cost averaged your money into the markets and the markets averaged 8%, you will not have received those returns because your money cannot truly compound in the markets, it is mathematically impossible for money to compound in a vehicle that fluctuates - all gains must be locked in. So you will absolutely not meet and exceed your retirement goals if the timing isn't right
ergs22 9 months ago
Historical fund returns are not quoted as arithmetic means, they are geometric (incorporates compounding). If it truly had a 25% annualized return over 4 years then $10,000 would have grown by 10,000 x 1.25^4. If its returns were as they are in the video, the annualized return would be the 4th root of (2 x .5 x 2 x .5) minus 1, which equals 0.
Thalo24 9 months ago
@Thalo24 Exactly, yet we are led to believe that these returns equate to real returns on our investment and they do not. This is why when we were told to dollar cost average into the market at a certain age, and get an 6 - 8% return in the markets, we would have 1 or 2 million when we retire. We are waking up to the fact that this isn't happening because it is mathematically impossible for our money to compound in the markets, given that all gains and principal cannot be locked in.
ergs22 9 months ago
No one is averaging averages my friend just clearly explaining the difference between average annualized rate of return and the investor's real rate of return on their money. It's actually pretty clear for those willing and able to comprehend, and not so clear for those who continue to enjoy the refreshing taste of Wall Street Kool-Aid. Peddling books? - that one gave me a good laugh - thanks and be well
ergs22 11 months ago
you are a moron...you CAN'T average averages...a funds 1/5/10 year return are the actual funds rate of return- please stop spewing nonsense and peddling books
partigus 11 months ago
Go to the BeTheBankTutor facebook page to learn where to go to find the solution to this dilemma
ergs22 1 year ago