The Silent 3% Killer
This week I would like to once again touch on one of my favourite topics ‘Investor Return Apathy’. Unfortunately most people do not even know what their returns actually are, but when they do get lucky and find out it doesn’t seem to matter to them anyway. Why do we demand such high levels of customer service and product performance in almost every aspect of our lives, but accept mediocre portfolio returns? Why do we shop around to save $50 on a piece of furniture, but turn a blind eye to hundreds of thousands of dollars lost in our accounts?
It is often possible to increase a portfolio return by 3% per year through a combination of superior investments, cost reduction methods, and proactive management. I call this the silent 3% killer for those who don’t care. Here are some numbers showing what $50,000 becomes when compounded at various rates of return over a 20-year period. For example you will notice that settling for an 8% return instead of 11% costs you $170,068 (73% more). If you had a $300,000 portfolio your loss would be $1,020,408.
6% = $160, 357
7% = $193,484
8% = $233,048
9% = $280,221
10% = $336,375
11% = $403,116
12% = $482,315
13% = $576,154
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