All About Voting took issue with my post, “My Daughter's $4 Million Wedding” with the following:
1. You did not account for inflation. That $4 million is not worth as much in 35 years as it is now.
2. 12% and 15% tax-free returns annualized for 35 years is an incredibly high return. I don't think it is realistic to use numbers above about 8% for this situation. If you think that they can get that kind of sustained return at an acceptable level of risk then you need to spell out how.
3. You can't always live for tomorrow. You should live a little for today too.
I chose to elevate my response with a post of its own so as to not bury the comment.
Many of you know how passionate I am about the time value of money. I’ve repeatedly written about it. I’ve told my kids over and over about it. And every time I talk about, I anticipate someone will say, “Nobody can get 12% returns consistently over time. Show me how.” Here’s proof of some of my ranting and raving about the subject:
“My Son The Millionaire”, published in March 2007.
“Creating Wealth And The Time Value Of Money", published in May 2005.
Well, All About Voting, here’s how:
- Invest in the Dogs of the Dow – the historical annual return has been 17.3% since 1973. I wrote about the Dogs of the Dow last month (click here for the post).
- Invest in Berkshire Hathaway (BRK.A or BRK.B) run by perhaps the most successful investor of all time – Warren Buffett. I have been a huge fan of Warren Buffett for years, even dragging my twelve year old son Nathan to a share holder meeting once, where Warren Buffett offered Nathan sound advice. (See “Bob Shallit Makes A Dad Even Prouder”, published by Gillian Parrillo, March 2007). The annual return on investment for BRK.A has been 19.25% since December of 1988.
- Invest according to the principles of Joel Greenblatt’s Magic Formula, where he has achieved 40% annual returns since 1985. I introduced the Magic Formula in a post in December 2006 (click here for the post).
- Be a value investor the Warren Buffett and Phil Town way. This means buying companies at market discount (i.e., paying 50 cents on the dollar). Phil Town’s book, Rule #1, explains how. I invest this way. All my trades are documented weekly on our companion website Our 4-Hour Workweek.
- Subscribe to The Motley Fool’s Hidden Gems Service. I pay $199 a year for the service. Since 2003, Tom Gardner’s picks are up on average 29.55% and Bill Mann’s picks are up 38.52% (versus 12.71% for the S&P 500 over the same timeframe).
- And the best way to achieve higher than 12% returns is through the Company 401K plan. I invest in seven funds, with a lifetime average annual return of 15.45% (includes a base of 13.63% plus matching funds from the company of 75 cents per dollar invested). The seven funds are Fidelity Diversified International Fund, with an 11.93% annual return since 12/27/1991; Fidelity Blue Chip Growth, with an 11.4% annual return since 12/31/1987; Allianz NJF Small-Cap Value Institutional Class, with a 14.17% annual return since 10/1/1991; Rockwell Collins Stock Fund, with a 22.05% annual return since 7/6/2001; Dodge and Cox Stock with an amazing 12.09% annual return since 1/4/1965; Fidelity International Discovery Fund with a 10.05% annual return since 12/31/1986; and, Fidelity OTC Portfolio with a 13.72% return since 12/31/1984.
So folks, it can be done. Every single investment that I make, I expect at least a 15% return, or I don’t make the investment. It requires me to do my homework, be patient, and not follow the crowd.
My daughter will have a lovely wedding and enjoy the moment. But she will also budget accordingly, and invest now for her future. Just remember, every $2,000 dollars spent today is a $233,446 loss 42 years from now at 12% annual return. Think about what you spend today, and save some too!
The Sacramento Executive