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By: Sam Instone

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April 4th, 2018

Where are all the billionaires?

Financial Planning

Considering how many millionaires there were in the world in the 1900s, there should be far more billionaires today.

That’s the theme of an absorbing TED talk by former fund manager Victor Haghani.

In the follow short interview, Haghani offers his fascinating insight into why so many millionaires underperformed…

…discover how you can achieve your full wealth potential…

 Exploring the themes Victor Haghani and Robin Powell touch on in the video:

To take a family’s net worth from millions to billions requires many things - persistence, intelligence, dedication…

But the founder of Vanguard, Jack Bogle, has a theory about how even the hardest working investors can see their returns compromised:

Let’s assume the stock market gives a 7% return over 50 years.

At that rate, because of the power of compounding, each dollar goes up to 30 dollars.

But the average fund charges you about 2% per year in costs, which drops your average annual return to 5%.

At that rate, you get 10 dollars.

So, 10 dollars versus 30 dollars.

You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return!

What Mr. Bogle hasn’t factored in are the taxes due on those returns, which makes his example returns even gloomier!

As you know, fees and taxes erode returns.  And there’s another problem.

Dalbar, an industry research firm, revealed the gigantic discrepancy between the market’s returns and the returns investors enjoy.

For example, the S&P 500 returned an average of just over 10% a year from 1985 to 2015.  

If you’d taken that 10+% your money would have doubled every seven years.  

Instead, the average investor made just 3.66% a year over those 30 years.

Tony Robbins comments:

“[As an investor] you are typically overpaying for underperformance.  Stock pickers and market forecasters are frequently wrong and their decisions can be quite costly.  The majority of mutual funds in existence are run by stock pickers, also known as “active managers.”  These fund managers try to generate superior returns by predicting which companies will perform best in the weeks, months, or years to come. Instead of trying to pick the winners and losers, or paying a pinstripe suit to guess for you, you can simply own all the stocks that make up a particular index.”

He’s right – but there’s also one final key consideration.

Standing between many millionaires and their future billionaire status remains one final problem…their own investment behaviour.

The solution to all of the foregoing?

Finding the right financial planner who can add value to your returns.

I started with Jack Bogle…so I’ll end with a recent study from his organisation, Vanguard:

John-Bogle

Here’s how much monetary value a good financial adviser can bring…

Lowering expense ratios = +0.45% in your pocket

Rebalancing your portfolio = +0.35% of increased performance

Asset allocation = +0.75% higher returns

Withdrawing the right investments in the right order in retirement = +0.70% in savings

Behavioural coaching = +1.50% for keeping you on track to become a billionaire.

That’s 3.75% of added value!

Far more than a good adviser will charge.

So, to ensure your billionaire success, make sure you’re working with the right people.

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About Sam Instone

Sam Instone, CEO at AES International, is passionate about positive change and ensuring expat investors get the best results.

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