Kelly O'Connor

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We all want to make reasonable financial decisions for the future. However, it’s important to understand the gap between average and actual investment results as you navigate the sea of financial advice. Let’s explore the idea of average versus actual returns and how realizing this can have a big influence on your financial choices.

 

The Average Trap:

Have you ever heard financial entertainers brag about their average rate of return to demonstrate their investment prowess? This method may appear convincing, but it has a hidden trap. These calculations frequently entail totaling the annual returns and dividing by the number of years to produce an average percentage. While this may appear rational, it does not accurately depict your financial experience.

 

A Hypothetical Journey:

To illustrate the disparity between average and actual returns, let’s journey through an example. Consider four years with hypothetical investment performances: 

+100%, +100%, -50%, and -50%. 

At first glance, calculating the average return might seem reasonable:

100 + 100 – 50 – 50) / 4 = 25%. 

This is the number financial entertainers often tout as the “actual” return.

 

The Deceptive Average:

While the calculated average is mathematically accurate, it fails to tell the whole story. Let’s break down the actual investment journey:

 

Year 1: You invest $100 and double it to $200.

Year 2: Another successful doubling brings your total to $400.

Year 3: A loss of 50% reduces your account to $200.

Year 4: Another 50% loss leaves you with the same amount you initially invested – $100.

 

The Actual Reality:

The key takeaway here is that actual investment returns depend on the sequence of gains and losses. The average return, while a neat number for marketing, doesn’t represent your account’s true performance. In the given example, the average return of 25% masks the actual outcome – a net result of 0%.

 

The Value of Understanding Actual Returns:

Understanding the difference between average and actual returns is paramount for informed decision-making. Financial entertainers might play the numbers game, but your financial security is on the line. Focus on the actual results your investments yield rather than the average calculated on paper.

 

Empowerment Through Education:

To navigate this intricate landscape, educate yourself about investment strategies and their implications. Learning about the impact of sequence risk and the reality of your account’s performance empowers you to make decisions aligned with your financial goals.

 

Unlocking the Potential:

If this insight intrigues you, delve deeper into resources that provide comprehensive views on investment strategies. Equip yourself with knowledge to distinguish between flashy marketing tactics and genuine investment wisdom.

 

Remember, your financial journey is unique, and blindly trusting average numbers can lead to misguided decisions. Focus on the actual performance of your investments and make choices that align with your long-term financial aspirations.

 

Whether you’re a novice investor or a seasoned financial enthusiast, the journey to financial security begins with a clear understanding of actual investment returns. Take charge of your financial future by staying informed, making educated choices, and bypassing the allure of deceptive averages.

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Kelly O’Connor is a master coach and trainer with a decades-long career in sales, marketing, and insurance. An industry leader, alongside top producers developing programs, he quickly became Colorado’s #1 speaker within the charter school system, traveling the state to speak in front of thousands of people and financial planners. A true visionary and figurehead for the community, he’s invested hundreds of thousands of dollars in marketing, coaching, and training masterminds and mentors.

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Hollie Clere,  Social Media Strategist

After having had a bad experience with a financial person in the past, I asked Kelly some hard questions before even introducing him to my husband. Most of it had to do with trust, focus and decisions we had gotten hurt with in the past. Kelly not only paid attention to every detail to the aspects to my questions but showed me where we had made some great choices and talked about the importance of each decision. He nis relationship focused. When my husband met him, Jer’s demeanor switched from debate to encouragement. Kelly’s presence alone made my husband comfortable and they visited about a lot of aspects of things.

Greg Peterson,  Founding Partner

Kelly was excellent to work with. His different approach at looking at money was an eye opener to us. We will continue to work with Kelly in the future and highly recommend having Kelly involved when it comes to investing.

Edward Hilton,  Chief Technology Officer

Kelly has exceeded all of my expectations. He provided education, experience, excellence and integrity! This is so important when working with a client's personal finances. As a school educator I appreciate his focus on education so that I could make the most informed financial decisions. I have a much clearer understanding of banking, finance, and investment now, and this will help my family currently and in the years to come. Thank you Kelly and kudos to the Mountain Financial team!

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