What You Must Know About Investing Returns

"We don't look to jump over 7-foot bars: we look around for 1-foot bars that we can step over.” Warren Buffett

Important facts  

• The only thing that counts are your real returns after expenses and taxes.

• Most people think they are making progress because their nest egg is growing, but they do not compare their returns to appropriate benchmarks.

• In evaluating your returns, you must consider the amount of risk you are taking.

What successful investors know about returns 

• Making the correct asset allocation determines 90% of investor returns.

• Compounding is the important factor in determining long-term returns.

• Expenses and taxes dramatically reduce your returns.

• You must compare your returns to the amount of risk you take.

• You can eliminate the possibility of under-performance by buying a market index.

• You can beat 75% of investors each year and 94% of investors over 10 years by buying index funds.

• Losing money has devastating consequences on your returns.

• Buying what's "hot" usually ends up badly.

• Taking too much risk causes investors to make mistakes, hurting returns.

• There is no evidence that everyone can emulate successful investors [like Peter Lynch].

• Neither individual investors nor asset managers have access to superior information or the ability to process information in a superior manner.