Take a quick guess – what do you think the average annual return of the S&P 500 Index has been since the start of the century almost 16 years ago?
Especially in light of the recent bull market, one of the biggest in history.
So what percent do you think the index has grown on average each year? Maybe 4%? 8%? 12%?
C’mon – humor me and take your best guess…
Okay… so over the last nearly 16 years, since January 1, 2000, the S&P 500 (which represents the broad market) has had an annual growth rate of only 1.96% per year. (Note: We are referring to the Compound Annual Growth Rate or “CAGR”.)
Did you guess that it was more than that? Most people do.
And sadly, that 1.96% per year annual growth rate was more than cancelled out by the 2.3% average annual rate of inflation during that same time period! Oops!
So, was that return worth the risk you took? Was it worth your sleepless nights?
It Gets Worse, Because You Didn’t Actually Get that 1.96% Annual Growth Rate – Here’s Why…
For starters, in order to participate in the returns of the S&P 500 (or any other index), you have to buy a financial product, like an S&P 500 Index mutual fund or an Exchange Traded Fund.
And those financial products have fees, typically totaling at least 1% per year.
So when you subtract that from the 1.96% annual growth rate, well… now you’re down to less than 1%.
Which means, when you factor in inflation, you’ve actually been going backwards for the past 16 years. All that risk for so little reward.
Several stock market lap dogs have complained that I didn’t include the dividends that you would receive, if you invested in a mutual fund or ETF that tracks the S&P 500 Index.
They have a point – your annual growth rate would be nearly double – or around 4% per year.
But Of Course, They Neglect to Mention the Fees You’ll Pay, Inflation and Taxes
So let’s subtract the annual fees you’ll pay that are going to total at least 1%, especially if you’re investing inside a 401(k) or IRA.
Now we’re down to 3% per year. Then when we subtract the 2.3% average annual inflation rate we’ve had, you’re down to a .7% annual growth rate.
Whoohoo! Can you honestly say that getting an inflation-adjusted growth rate of less than 1% per year… for the last 16 years… has been worth the stress and worry… the sleepless nights… and the wondering when the next market crash will wipe away 50% or more of your life’s savings – AGAIN?!?
And we haven’t even talked about the HUGE bite that taxes are going to take, when you go to take an income, if you’re investing in a tax-deferred account, like a 401(k), 403(b) or IRA. Uh-oh…
What if History Repeats Itself Over the NEXT 16 Years?
A whopping 93% of those we’ve surveyed believe there will be another major stock market crash in the next 5 to 10 years – or even sooner. Maybe you’re in that camp, too.
And what if the next market crash happens right before – or right after – you retire? The last two crashes each vaporized 50% or more of investors’ money.
If you have a significant portion of your retirement savings in the stock market, how would another 50% or more plunge in the value of your nest-egg affect your retirement security?
There’s a Better Way – One That Lets You Grow Your Nest-Egg Safely and Predictably EVERY Year – Even When the Market is Crashing
It’s called Bank On Yourself, and it’s never had a losing year in its 160-plus-year history. It enjoys an unbeatable combination of advantages, which includes guaranteed growth, safety, control, liquidity and some juicy tax benefits.
This is the time of the year when we begin to reflect on our past accomplishments… and what we want to be different and better in the future. Will continuing to do what you’ve been doing get you there?
Take control of your Financial Future Today
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