Three Ways I Made 1000% Returns And Why 7% ROI Sucks

This may be one of the most important posts I ever write around money. And it may look click-baity but that title is more serious than a snakebite.

This community is full of Heroes and Heroes know that the status quo doesn't get you anywhere worthwhile. That's why I'm here to tell you the overly-preached status quo of 7% ROI sucks.

If you are under 45 years old, there's a high likelihood that you don't have a $1M net worth yet. In fact, there's about a 50% chance you are still trying to hit that $100k net worth milestone.

If that's you, then being satisfied with 7% returns in the stock market is a losing strategy. Because even 7% returns aren't 7% returns.

Let me explain (I show my work for transparency and because that's what homeschooling does to you but you can skip to the end if you don't want to go through it).

Beware: Math Lies Ahead

Situation: Invest $25,000 in the stock market for 5 years earning 7% annually (this is assuming you don't reinvest the gains for simplicity of math).

$25,000 x 0.07 x 5 years = $8,750 profit

Total return - $33,750

$33,750/$25,000 = 1.35 x 100 (to make a percentage) = 135% - 100% (of the original amount) and boom, 35% returns.

Okay that's some long form math. With the simplicity of the equation we could have just done 5 years x 7% = 35% but it's rarely this straight forward. Moving on to what you are likely thinking...

But Stephen, its 35%! That's way more than 7%. Isn't that good?

Yes, its better than 0%. But its also not 35% returns. This is where most people stop their calculation and that's a HUGE mistake because that 35% is not what is going to stay in your bank account.

The Math We Ignore

Assuming some averages here, since this was a stock, we are going to have to pay capital gains tax.

Since it's a long term investment (over 12 months), we will pay a lower rate of likely 15% (20% for hi-earners in the USA). 

$8,750 x 0.85 (1-.15) = $7,438

That makes the true profit $32,438 and drops our 5 year ROI to 29%

THEN...let's pretend it hasn't been a crazy few years of disastrous government policy and 8% inflation. So we will revert to our preferred average of around 3% inflation each year.

I'll save you the math and just say that your purchasing power on that $32,438 declined to the equivalent of about $27,850 by the time you sold it. That's not a lot more than $25,000.

Granted, we usually don't calculate the inflationary portion but it cannot be completely ignored when talking about long term investments.

People think $3,000,000 will be enough to retire on in 30 years because they're comparing it to prices now. But in 30 years, a gallon of milk will be around $25-$30 so that's unrealistic.

Getting To The 1,000% Part...

Ask any millionaire if they'd rather have $500,000 in cash right then or $1,000,000 spread out in payments of $100,000 over 10 years and they'll take the $500,000 cash right then without blinking.

The way you get to 1,000% returns and more is by constantly reinvesting your gains and never taking profits.

Here's the even better news. This is MUCH easier to do when you don't have a lot of money and its MUCH harder to do when you have lots of money.

Here's 3 ways I made over 1000% with an initial investment.

  1. Warren Buffett, the greatest investor ever, said the best money he ever spent was a course. Same goes for me. I spent $500 on a course that taught me how to research stocks. Since then, I've invested over $200,000 and turned that into $412,000. Then, I leveraged $80,000 of that for a construction loan on a new home. That new home was purchased for $425,000. I sold it 3 years later for $640,000. None of that would have happened without a $500 course that helped me understand stocks and the economy. That's $212,000 profit in stocks that enabled me to get a home that appreciated $215,000 for a total of $427,000. ROI - 85,400% (and still going since I repeated the process with another new build, but haven't sold so I'm not counting it yet)
  2. Bought $8000 of Ethereum (a cryptocurrency) in 2017 at $50 a coin. When it went up 100% and I had $16,000, I sold my original $8,000 and told myself I would hold the rest for 5 years. I did sell some along the way to diversify it, but at today's valuation...ROI - 1,250%.
  3. We had twin girls and bought two used, wooden cribs for $100. After using them for 2 years, we repainted them white ($20 in materials) and sold them for $240. I took that $240 and then bought a pressure washer since we had just moved into a community with a lot of new construction and dirt got everywhere. I took a weekend and offered to pressure wash driveways and housefronts on my block for $150/driveway and $100/housefront. I did 5 driveways and 4 housefronts for a total of $1,150. The ROI on that $120 spent on the cribs - 958%. 

Granted, that last example fell short of the 10x return. But I wanted to highlight it because it only took me a total of about 14 hours of work (painting the cribs and pressure washing) to get a 958% return on my money.

The Biggest Takeaway

One of my closest friends works in the finance industry with people who have a minimum of $25 million to invest. He's got a lot of crazy stories. But one really valuable one came from a guy who was an average Joe turned multi-millionaire.

The crazy thing was that his 5 closest childhood friends all became millionaires too even though they grew up lower class. He asked him if there was a common denominator to all their success since they'd done it different ways.

He said getting large sums of cash and reinvesting it all for more returns was that factor. Anytime they found some success, they just took the gains and found a way to make more money with it.

Mr. Beast is a YouTuber with a channel currently valued over $1 Billion. He takes the money he makes on every single video (which is in the millions) and spends none of it on himself. Instead, he reinvests every single dollar into his next video.

He is worth over a billion dollars from making YouTube videos and he's only 26. Now, he's expanding his empire into food and clothing with massive success.

So what's the biggest takeaway?

All it takes to get lightyears ahead financially from where you are now is a few years of:

  • intense focus
  • intentional learning
  • hard work
  • keeping living costs the same
  • reinvesting gains 

You are the hero of your story. Don't settle for 7%.

Until our paths cross again... 

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