Category: Investing

How to Calculate Rate of Return On A Real Estate Investment (John & Jane Jones Pt. 6 of 9)

“Hello, this is John Jones.  I know we have called a number of times with ‘opportunities’ but this time I think we really have one,” John said excitedly as I answered the telephone early Monday morning before my first appointment. “That is good news,” I said.  “Do you want to tell me about it over the telephone or come in for a sit-down meeting?”  I asked. “How about tomorrow?” John asked.  “We can come anytime you are available.” “I am fairly booked up, but this sounds like an important issue

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Average Does Not Equal Actual

Average Rates of Return are often touted by financial experts, and yet simple math can show us that Average does not equal Actual. Pretend that you invested $100,000 into a mutual fund that had promised an average rate of return of 25% if you left the money alone for 2 years. In the first year it earned 100%. After the first year, the investment would look like this: In the second year, the fund earned -50% (that is a negative 50%) and so now your investment looks like this: While your

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How do I tell about the Dow in 100 years?

How do I tell about the Dow in 100 years? In the year 1900 the Dow Jones Industrial Average was 65.29. One hundred years later it was 11,600. Using a Rate Calculator from Truth Concepts we can see that 65 (the calculator doesn’t round internally but it prints that way) growing to 11,600 over 100 years is 5.32%. So the Dow has averaged 5.32% over those 100 years.   What if we looked at the next 100 years? Now we use a Future Value Calculator, put 11,600 in as the

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How do I figure out if I can get ahead by earning 6% if I have an 8% cost?

How do I figure out if I can get ahead by earning 6% if I have an 8% loan? At first glance, the answer is obvious, you don’t get ahead.  However, sometimes we get confused and think that since an account (say at 6%) has an increasing balance while a loan (say at 8%) has a decreasing balance, we might be able to get ahead.  Let’s look at it to see the whole truth of the matter. Take a $100,000 account earning 6% over 20 years.  Future Value: $320,714.  

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How Can We Prove a 15% Flat Tax is the Most Efficient?

Let’s use a Cash Flow Calculator from www.truthconcepts.com to tell the whole truth about what happens to an account when it gets taxed. We’ll put in $20 in 1913, the year the tax system started. We’ll show the account earning 20% per year. We can see below that the account has $798,784,476 (that’s $798 million) in it.   This assumes no taxes or management fees were taken out during this time.  If we adjusted the account for inflation, assuming a 4% annual rate, it would have $18,502,442  ($18 million) in

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Calculating Internal Rate of Return

How do you calculate the internal rate of return on an investment when the cash flows vary and you can’t use a typical financial calculator that only functions with the same stream of payments, not a varying stream?  For example, you invest in an oil well where you contribute $100,000 the first year and the second year there is a $20,000 capital call (meaning you contribute $20,000 more). Then in the third year, there wasn’t any income but starting in the fourth year, you received the following stream, $30,000, $25,000,

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