How to Get Higher Returns
Last time we talked about how to avoid high Wall Street fees. Now you can learn how to get higher returns and combine that with lower fees so you can grow your retirement savings much more quickly.
The first question you should ask yourself (or your financial advisor) is “what level of returns have I been getting over the past few years?”
In other words, know your starting point.
How Does The Stock Market Stack Up?
Let’s start with a typical example for the stock market. Even if you are not in Wall Street securities, this will be help you gauge good and bad returns.
In our example, we’ll use the SPDR S&P 500 ETF (ticker SPY), which tracks the S&P 500 and pays a dividend. Unless you have a crystal ball, this is about as good as it gets in Wall Street.
From the year 2000 through 2015, SPY only returned an average of 3.73% annually 1. If you include inflation, then it is a paltry 1.62% annual return.
Sure, it’s (slightly) better than you’ll get at a bank, but remember the fees we talked about in parts 1 & 2? Being an ETF the fees are probably a bit lower, but if you own mutual funds (as most average investors do), you are probably paying at least 4% in fees.
There goes all of your returns.
Net zero (or even loss). Not so good, huh?
This is not the way to grow your retirement savings. In fact, if you add inflation to the picture, your purchasing power is shrinking.
Now let’s shift gears. Instead of focusing on growth let’s look for income first.
Both can provide a return, but you’ll find that income can provide a steady return over long periods of time with much lower risk.
Focus On Cashflow Assets First
Solid cash-flow producing assets should be the foundation of your portfolio. Let’s sift through the bad and good to find some that will work for you.
Stock dividends provide income, but good luck finding one that is more than a few percent. You’ll be hard pressed to beat inflation this way.
The Wall Street Journal reported “some of the better performers in the S&P 500 this year include companies paying annual dividends of about 4 percent or more as a proportion of their share price.2”
Real inflation is more than 4%, so stock dividends are a non-starter.
What about alternative investments?
We can break these down into two types:
- Passive Cash-Flow Real Estate
- Private Free Market Assets
Both of these can return 10% or more on your investment (if you do it right), after expenses!
That’s not a typo.
The right cash-flow assets are currently producing 10-15% net annual return.
If that interests you, read on.
How to Get Higher Returns with Real Estate
First, we’ll look at Passive Cash-Flow Real Estate.
By “passive,” we mean rehabbed and managed by a professional firm, not by you, the investor.
We’re not trying to find you another job here, just produce passive, hands-off income month after month, year after year.
We’ve found the best cash-flow properties to be modest, middle-income single family homes in the midwest. Initial investment is moderate and rents are stable, even during a moderate downturn.
The right rental properties can produce 12-15% return after expenses. And all of the work is done for you (these are turnkey, passive income houses).
Think about that for a minute.
Where in the stock market can you find 12-15% net returns? And steady, year after year?
The short answer is you can’t.
Whether you are new to real estate investing or you’ve had a bad experience with it in the past, I think you’ll find that the right team of people will help you make the experience both profitable and enjoyable.
In the next installment we’ll discuss Private Free Markets and how to get higher returns using this new area of opportunity in your portfolio. Check back soon for the next update.