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The Ethereum Machine

by dilli jack (2019-01-28)

To make sure all of your investable money is included in theThe Ethereum Machine equation, you must take into account commissions and taxes. If you invest in mutual funds, you will most likely have to endure capital gains. If your mutual fund has bought and then sold a stock during the year, the fund must pay capital gains on the sale. The capital gain is your burden to bear even if you have not sold any of your shares during the year. This is why those savvy investors choose tax efficient low turnover mutual funds. The lower the turnover, the lower the taxes you'll pay. You need to keep as much of your money invested and out of the government's hands as possible.In addition to taxes and commissions, you have another big enemy; inflation. Inflation has been running at a historical average rate of about 3% according to Ibbotson Associates. Inflation will put a huge financial burden on your retirement plan. If your return on your investment is 9% and taxes reduces it another 2%, your real return is 7%. Factor a historical rate of inflation of 3% and you're left with a net return of just 4%. If you start with $100,000, your money's purchasing power will be reduced to $73,700 in 10 years, $54,000 in 20 years and to just $40,100 in 30 years. Most asset classes over the long run don't even come close to returning 9%. In a study by the Vanguard group, an all bond portfolio returned 7.9% between 1960 and 2003. A balanced portfolio of 50% stocks and 50% bonds returned 9.2%. Invest in a 100% stock portfolio and your return would have been 10.5%. If you have a long time horizon over 10 years, this is precisely why you need to be invested in stocks.