Is earning 10% a lot? Heck, yeah! But… what is the 10% referring to? Is that your actual return, or is that your return before fees, taxes, and inflation?
I enjoyed this article from today’s NY Times business section about how one firm (Evercore) is telling the truth on real investing return, and trying to communicate differently.
In truth, Evercore’s clients are pretty wealthy. But, I find it interesting at how dismissive they are when they talk about a real return of 3–5% and people can summarily dismiss them. The last paragraph in the article caught my attention as it sums up the effect of inflation, fees and taxes quite nicely, turning a great double-digit return into a mediocre single-digit return in a heartbeat.
It’s not just a “rich person problem” either. Fees really matter, and matter more-so when investing over a longer period of time (just like our dividends have an increasing impact over time).
It’s very important to focus on a real return, or in the case of the Elephant’s Paycheck Blueprint, the size of the paycheck you receive by sticking to this investing blueprint for the long haul.