Do you know the whole truth about how interest rates and rates of return work? Did you know borrowing money at 4% and investing at 5% is not a 1% difference but a 25% return? Yet this concept is how banks make money. While the jump from 4% to 5% may be a 1% spread, most people cannot identify the 25% return because we don’t typically use financial calculators (like an HP-12c). If we do use them, it is still hard to tell what is going on because we can’t see

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## Understanding Interest Rates: Is 12% Annually the Same as 1% Monthly?

Many people have trouble understanding interest rates and how to calculate them, which can lead to an incorrect interpretation of financial information. Fortunately, TC Financial Calculators can make rate calculations simple. The Financial Calculators in Truth Concepts include Future Value, Present Value, Interest Rate, Payment, and Time Period. You’ll find them in the toolbar by clicking Calculators, then hovering over Financial in the drop-down menu. For this particular example, let’s answer the question: How do you calculate if 12% annually is the same as 1% monthly? Step 1: Grab the

Read More## Should You Take Social Security Early and Invest It?

Should you take social security early and invest it? This question can come up often when helping clients secure their financial future. However, the answer is a resounding no in most cases. Taking an early social security benefit only works to remove dollars from your client’s future assets, when the future assets are less certain. Social Security benefits can supplement income, yet should not be considered the bread and butter. In general, we recommend delaying benefits for the optimal impact and finding other ways to supplement income. This includes working

Read More## Does IUL Really Offer Stock Market Returns Without Risk?

Since the IUL (Indexed Universal Life insurance) came onto the scene, it’s been sold as a way to get stock market returns without taking any of the risk. In this case, the risk in question is losses in the stock market. Companies often have a guaranteed minimum interest rate. In theory, this should make you rich, right? So how come so many IUL policies collapse? Flexible premiums are not solely to blame. In reality, guaranteed minimum interest rates have to be tempered somehow. For whole life insurance, minimums can be

Read More## 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

Read More## 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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