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# Category: Investing

## 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

Read More## 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.

Read More## 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

Read More## 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,

Read More## How To Figure Out If 12% Annually Is The Same As 1% Monthly?

How do you figure out if 12% annually is the same as 1% monthly? First take a Future Value Calculator on “annual” and put in $100,000 at 12% for 1 year, and it shows the FV to be $112,000. Then take another Future Value Calculator set on “monthly” and put in $100,000 at 12% for 12 months, and it shows the FV to be $112,683. Most banks compound monthly, a few savings and loans compound quarterly, yet it is common to express interest rates

Read More