Financial advisors seem to think their clients have a time machine.Amber Hestla introduced on Wednesday. She treats her children by “adding yesterday’s cookies to today’s ice cream.” She demonstrates this same idea in her trading account, rolling profits from one winning trade into another. That’s exactly what financial advisors are talking about. (Not the cookie part — that’s Amber’s creative way of introducing the idea of compounding to her children.) They tell you to roll your profits from one year into the next for 40 years. This is wise advice, and the math behind their calculations is correct. But there are two major issues with their approach in the real world…They like to explain that, with enough time, anyone can enjoy a financially secure retirement. For example, assuming stocks gain an average of 10% a year, you could retire with $885,000 if you invest $2,000 a year for 40 years. This is the idea of compounding that
Would You Rather Retire With $885K or $1.2 MILLION?
One obvious problem is that most of us don’t have 40 years before retirement.The second is that those who do have 40 years until retirement are young people in their 20s or 30s. This group generally doesn’t have expendable money to invest for the future. They need to buy a house, or save to put their kids through college. Without 40 years of compounding, advisors tell us, the gains will be lower. Their solution? Save more. Of course, if we had more money to save, we wouldn’t have this problem in the first place. Fortunately, there’s a simple solution — one that doesn’t involve a time machine. Instead of investing $2,000 a year, let’s say you invest $166.66 a month. Same amount of money, invested more frequently. With average gains of 0.83% a month, after 40 years, your account will hold over $1 million. That’s 17% more than the previous example. And all you did was change how often you invest the same amount of money. But you can do even better than that… If you’re a short-term trader, like Amber, you might hold each position for a week instead. Of course, that makes you an active trader. And any active trader will experience both wins and losses. So for this scenario, let’s assume your gains are just one-half of the gains cited above. That’s 0.4% per month, or 0.1% per week. Compounding weekly, after 40 years… The account is now worth $1.2 million. That’s 13% more than monthly compounding… And 32% more than annual compounding. Now, like I said, not all of us have 40 years until retirement. Maybe you’re in your 50s and just now taking a serious look at your finances. If you listened to an advisor and invested $2,000 a year for just 20 years at an annual return of 10%, you’d have $114,550. On the other hand, if you averaged weekly gains of 0.1% for 20 years, you’d retire with $139,604. That’s 22% outperformance on your money in the same time span. You’re basically getting an extra 4-5 years’ worth of returns. But if you still need more convincing, just take a look at Jim Rogers…
From $600 to $300 Million
In 1968, Rogers started investing with $600. He retired 11 years later at just 37.Today, he’s worth an estimated $300 million. He’s spent the past 43 years enjoying the wealth he created in just over a decade. How did Rogers do it? With short-term compound gains. He made his money running a hedge fund with George Soros. That fund gained 4,200% in 10 years. Soros wrote a book in the late 1980s that explained how they traded their hedge fund. They looked at trades every day. They didn’t want 10% a year. They were after 10% or more a week. By taking short-term gains, they achieved annual returns averaging 85% a year. Unlike Rogers, Soros didn’t retire early. Today, he’s worth about $8 billion. (That’s after a $32 billion donation to his charitable foundation.) Now, most of us won’t have $8 billion in our bank accounts in just a few decades. But if we follow the lead of Amber, Rogers, and Soros, and focus on short-term compound gains, we will have more than enough to enjoy a comfortable retirement.
Regards,Michael Carr, CMT, CFTeEditor, True Options Masters
P.S. Now, I know that finding a different trade to place every single week is easier said than done.target 10% returns each week… Trading the same ticker every time. You just place one trade, once a week, and wait for the gains to start stacking up. Don’t settle for 10% a year. Click here now to take back control of your financial future.After all, there are thousands of sectors to choose from — and tens of thousands of stocks in those sectors. It’s overwhelming for even seasoned traders… But years ago, I had a hunch that trading didn’t need to be so complicated. And after countless hours of research, I found a way to
Chart of the Day:Materials in Sharp Decline
By Mike Merson, Managing Editor, True Options Masters
As I was doing my morning chart review — my daily meditation which produces these Charts of the Day — I lingered on a ticker that doesn’t grab my attention much.
The SPDR Materials ETF (XLB) caught my eye for having one of the sharpest short-term declines out of any of the other sectors ETFs in the market, after enjoying a relatively stable performance in 2022. It’s fallen nearly 16% in just over a week. At a glance, only the Energy ETF (XLE) has fared worse, likely due to the dump in natural gas prices. With ultra-fast declines like this, it’s only reasonable to expect some type of bounce or chop. And with XLB opening higher today, that’s exactly what we’re getting. But the various short-term moving averages have all broken below the 200-day moving average, signaling a significant trend shift to the downside. I wouldn’t be betting on a substantial reversal in XLB today, but these lesser-known ETFs are key to watch as a panic-meter. If everything starts selling off all at once as it did during March 2020, we know that we have a panic on our hands. And as 2020 later showed us, these somewhat irrational moments can be excellent opportunities to buy.
Regards,Mike Merson Managing Editor, True Options Masters