4 Simple Steps The Smartest Person I Know Follows To Earn 33% Per Year
He works in investment banking in London and can only spend 2 hours a year taking care of his finances.
One of the most popular surveys among investors is about the purpose of why they invest. The answers are always very similar: Financial Security, Financial Independence, Build Your Wealth or Attain Your Goals. The latter is the one that has always driven us.
However, when we look at the average returns of long-term investors the reality is very different:
As you can see the average investor’s results are a little higher than the inflation we had a few years ago. Today, the average investor would be losing 4% per year!. And as Powell said, let’s take out the word ‘transitory’.
These poor returns are due to the fact that the average investor is psychologically biased and follows an investment flow very similar to the following:
The average investor, lacking in knowledge, feels that his thesis is collapsing in the face of declines and that he doesn’t know as much as he thought he did. But if you are reading this, you are above 99% of investors and you are probably much closer to the goal you are investing for.
One of the easiest strategies to implement and with which the average investor can beat or at least match the index is through the ‘Buy and Hold’, or as some call it ‘Beer and G(H)old’.
Next, I am going to give you 4 totally free steps with which you will be a better investor than most gurus selling +$500 courses. You will find it unbelievable that this newsletter can be free. The steps are:
Decide the monthly amount you will contribute (e.g. $1,000/month).
Place an automated order with the following percentages (these are the ones that seem most appropriate to me) and in the following ETFs:
- iShares MSCI ACWI ETF (ACWI): 90%.
- Vanguard Total Bond Market ETF (BND): 10%.
On January 1 and July 1 rebalance to match the percentages.
Earn 33.88% annual return since 2008.
[We use VTI instead of ACWI, as the latter was created in 2009].
Complicated? Not at all.
What’s the downside? That the only real recession year, 2008, happens in the first year of contributions.
What would happen if it happened at the end of the contribution cycle? That we would see our portfolio shrink by 40% at the end of our investment cycle, and that’s something nobody decides.
So, are you going to leave your future to chance?
What if our child needs money for college? What if we need to pay the down payment on an apartment? What if we need money for an operation (hopefully not the case)? What if, what if, what if?
For the record, if you have followed the 4 steps above you will not have any problem. But many times people psychologically do not have the capacity to withstand falls of more than 40% and that is when we put aside a good strategy.
Now, you know how by dedicating 2 hours a year you can obtain extraordinary returns. A good friend of mine works in a large investment bank in London and has confessed to me that he invests in this way because he does not have enough time to make more active management.
But if you want to go a step further, I am going to explain two very simple points that great investors know and that you may not have noticed:
Never lose money
Big investors are made during the Bear Market
We are in a market situation where juniors make +100% in one day with a shitcoin and the big Hedge Fund Managers struggle to keep up with the index.
Does anyone believe that they have forgotten everything they knew?
They know that the markets are currently experiencing one of the biggest bubbles in history and having cash and being prepared for a crash, which seems to be coming sooner rather than later, is one of the most important things to take into account.
The clearest examples could be:
Warren Buffet sold a lot of OTM PUTs during the 2008 crash (don’t try to repeat this at home). He also now has more cash than ever in his company Berkshire Hataway ($149.2B)
Howard Marks has confessed in some of his MEMO’s that he bought during all the months of the 2007 crash, systematically.
Jim Simons made returns of 128.1%, 136.6%, and 152.1% in 2000, 2007, and 2008, respectively.
Spitznagel launched his Hedge Fund in 2007 and has since made 70% average annual returns (4,400% on March 20).
These are just some of the examples that having money when no one else has can make you tremendously rich.
I’m not going to lie to you, it takes time and on many occasions going against the crowd, but nobody got ordinary results, with ordinary shares.