I often talk about the time value of money and how a 12% return on investment per year will make you a millionaire. Usually, when I mention 12% annual return, my friend Ed Ring will respond, questioning my sanity in planning for such a high rate of return. For example, Ed recently wrote:

"Your assumption about a 12% return is a reflection of the exhuberance that got this country into the mess it is in today. Real rates of return on investment - in aggregate - cannot exceed the real rate of growth of the global economy, which in the 2nd half of the 20th century was 4%, the highest ever. And even that figure, 4%, is probably skewed upwards because of the internet bubble which didn't burst until a few months after 12-31-99.

While some individual investors and small funds will obviously earn real rates of return in excess of 4%, to suggest that just anyone can make a passive investment in a 401K and expect anything remotely close to 12% is delusional. Tragically, this collective delusion is appealing and contagious and is the reason pension fund managers with responsibility for millions of workers misled themselves as well as policymakers - and here we are."

Here's my offer to Ed and anyone else willing to take me up on a bet: Let's bet $100 that I can make 12% in one year (I will document my trades here at www.sacramentoexecutive.com), beginning on April 1. If I lose, I will donate $100 to Kiva.org (a great micro finance company). If you lose, you agree to donate $100 to Kiva.org. For everyone who emails me (pierre@sacramentoexecutive.com) and takes me up on the bet, I will donate $100 per bet if I lose.

Any takers?

Pierre Cutler
The Sacramento Executive