Are You Being Honest With Yourself?

Jimmy Butts's picture

Friday, June 21, 2019 - 12:00am

by Jimmy Butts

A recent investment survey unveiled some alarming statistics...

The 2017 Global Investor Study by asset management firm Schroders found that there is a major conflict between investors' behavior and their expected returns. It seems that there's a good amount of people who expect double-digit returns... while sitting in cash. (You can read the full report here.)


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More specifically, Millennial investors -- those born in the 1980s and 1990s -- expect average annual returns of 11.7% over the next five years.

But before you mock that lofty expectation, consider that Generation X investors (born in the 1960s to 1980) expect 9.9% annual returns, while Baby Boomers (early to mid-1940s to early 1960s) expect an average return of 8.7% per year.

Institutional investors, meanwhile, expect annual returns of just over 5%.

Now, it's true that the S&P 500's annualized returns over the last 90 years is 9.6% with dividends reinvested. But on an inflation-adjusted basis, the annualized returns of the S&P 500 diminish to 6.4%.

All Of The Returns, None Of The Risk
But here's the kicker... despite the Millennial generation's expectations for double-digit annual returns, 55% say they keep most of their money in cash. That's significantly more than Generation X (47%) and Baby Boomers (41%).

And astonishingly, 57% said they don't want to take on very much risk when it comes to their investments. Meanwhile, Baby Boomers clock in at 63% in this category, which makes sense since they are in, or nearing, retirement.

In other words, Millennials basically want to earn double-digit returns from their savings accounts...

And perhaps what's more astonishing is that the survey found 20% of investors in the Americas expected at least 20% annual returns over the next five years.

By looking at the investing period of Millennials, you can see where these lofty expectations come from. After all, most likely didn't have any money invested during The Great Recession, and after that, markets have flourished.

In fact, from the beginning of 2009 through 2017 the S&P 500 has delivered double-digit annual returns in all but two years (2011 and 2015). And its total return during that time span is a whopping 247.5%, or 14.9% annually.

Now I don't like raining on anyone's parade, but to expect these sorts of returns is setting yourself up for disappointment. Here's why...

Setting Up For Failure
By trying to reach this lofty benchmark year after year, you'll slowly begin taking on more and more risk -- quite possibly without even realizing that you're doing it.

You'll swing for the fences with every pick. Your ego won't allow you cut your losers short, letting them sink your portfolio. Emotions begin controlling your investment decisions. And you become so focused on making massive gains that you lose sight of the bigger picture.

Pretty soon a rogue wave wipes you out and leaves you with nothing.

Don't think it will happen to you? Well neither did the speculators during the dot-com boom and the last financial crisis. It can, and will, happen to you if you get caught up in the hype and don't have an honest conversation with yourself about what sort of risk level you're willing to tolerate, and whether that matches up with your goals. If you don't have this conversation with yourself, you'll begin ignoring sell signals, or stop following your strategy altogether (that is, if you ever even had either of these).

There's A Better Way
My goal with the Maximum Profit system isn't just to provide market-beating stock recommendations, although we do... We've made gains of 135%, 181%, 242% and more using this system -- but perhaps ever more important, it's steered us away from the market when it hits rough waters.

The point is this... your goal shouldn't just be about finding big winners. It should be about compounding your wealth... and keeping it. I want to help my premium subscribers avoid letting their emotions dictate their investing decisions. To help them avoid letting that 15%-20% loser turn into a 50%, 60% or 70% loser.

Having rules and a system at your back can truly help you be a better investor. Maximum Profit provides the system and the rules. But you still have to execute them. If you're tired of not knowing only what to buy, but when to buy and sell, then you should learn what the Maximum Profit system is all about. Regardless, make sure you're being honest with yourself about your goals and risk tolerance. Then, put in a system of rules for buying and selling. It just might be the best investment decision you ever make.

Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.