Exponentially Speaking

In previous updates, we began discussing the L.O.R.D.S. Investment Strategy, which stands for Longevity, Opportunity, Returns, Diversity and Stability.  These are the criteria we use to assess and select mutual funds.  We have gone over what we look for in Longevity and Opportunity, so now we will discuss Returns.

When we select a mutual fund, we always look for higher returning funds in order to maximize your return over the long run.  Our current group of funds have lifetime annual returns ranging from around 12% to over 15%.  As a group, these funds have returned over 14% since 1985.  Maximizing returns over the long run is important, because the growth is exponential.  A 14% average annual return does not just give you double the growth of 7%, but rather exponentially more money over the long run.  The table below shows you examples of different annual return rates over different time periods.

In Future Dollars		In Today's Dollars with 3% Inflation
$10,000 invested at	After 5 Years	After 20 Years	After 35 Years		$10,000 invested at	After 5 Years	After 20 Years	After 35 Years
6%	$13,382	$32,071	$76,861		6%	$11,544	$17,757	$27,315
7%	$14,026	$38,697	$106,766		7%	$12,099	$21,426	$37,943
8%	$14,693	$46,610	$147,853		8%	$12,675	$25,807	$52,545
9%	$15,386	$56,044	$204,140		9%	$13,272	$31,030	$72,548
10%	$16,105	$67,275	$281,024		10%	$13,892	$37,249	$99,871
11%	$16,851	$80,623	$385,749		11%	$14,535	$44,639	$137,089
12%	$17,623	$96,463	$527,996		12%	$15,202	$53,409	$187,641
13%	$18,424	$115,231	$720,685		13%	$15,893	$63,801	$256,120
14%	$19,254	$137,435	$981,002		14%	$16,609	$76,094	$348,632
15%	$20,114	$163,665	$1,331,755		15%	$17,350	$90,618	$473,284

When discussing returns, it is also important to consider the impact of inflation, which is shown in the table above and to the right.  Inflation is especially high now, with a 12 month increase of 8.2%.  Historically, it has increased by around 3% per year for the last 100 years.  Therefore, whenever you are planning for your future, you must take into account what your money will be worth to you at that future date.  As you can see, this makes getting a higher return rate even more important.

Give me a call and I will help you meet your future goals.

Sincerely,

Samuel Schaeffer