There are a whole bunch of numbers on the internet being thrown around and proclaimed as the long term return of the U.S. stock market.  Anywhere from 7%-11% depending on who you believe.  This number is the basis for a lot of folks' investment decisions and its accuracy is not something to be taken lightly...  especially when a couple of little problems become apparent when you stop to think about the methodology most commonly used.

So I've decided to go into the historical data for the S&P 500 index and try to calculate it for myself.

There have been many statistics published in the news about how more and more millennial adults are still living with their parents.  More so than previous generations.  As this is an investing and personal finance blog, I would like to focus on the merits (or not) of this strategy in order to save money early on in your career.

Is this a smart financial move?  Or does it turn you into a loser?

When it comes to portfolio allocation, the conventional advice is to move more of your portfolio into bonds the closer you get to retirement.  "Bonds are safer than stocks" goes the mantra.  After all, what makes bonds "safe" is that you receive a guaranteed rate of interest and you get paid before stockholders do if the company goes belly-up.  And for those that prefer bond mutual funds, they supposedly fluctuate less than equity (stock) funds.  Bonds and bond funds are therefore supposed to cushion the risk of a stock market crash.

In this article, I will talk about how blindly following this advice can be dangerous to your portfolio.

Your mortgage rate is 3.75%.  The stock market returns 7-11% on average (depending on who you ask).  You'd have to be a fool to pay extra on your mortgage when you can make so much more in the stock market.

Right?

In the first three sections of this series, I discussed the three big annual financial statements that publicly traded corporations are required to produce: the Balance Sheet, the Income Statement, and the Statement of Cash Flows...   and how we as individuals can do something similar for our own finances.  Along the way, I also provided simple examples for Brian, a fictional recent college graduate.

In this final part, I will present a more complicated and realistic example, that of a husband and wife with a house, a mortgage, a stock portfolio, and an investment property.

Did you know you that a business can have a positive net income, but still be hemorrhaging money?

In Part I we talked about the Balance Sheet (your net worth) and in Part II we talked about the Income Statement.  The problem with the Income Statement is that it only shows your expenses...  and things like paying down the principal portion of your loans are not expenses.

If you rely solely on your Income Statement to do your budget, you could be in for a rude surprise if you carry a mortgage.

This is where the Statement of Cash Flows comes in

Your household isn't really much different from a business.  You generate revenue (you and your spouse's salaries, for example) and like a business, you also have expenses (rent payments, grocery bills, etc).  Any good business owner or CEO knows whether his company is making or losing money.  If someone asked you if you made or lost money last year, would you know?

In Part I of the Making your own financial statements series, I talked about how to calculate your net worth by replicating the first of the three reports that make up a publicly traded corporation's Financial Statements.

In this part we will discuss the second report, which is called the Income Statement.

I'm sure at one time or another you've heard someone say something like...  "Wow!  Bob's business is worth $3.5 million."  or  "Roger's business is no good.  It loses $2 million a year!"  or  "Bill Gates is worth $90 million."

Did you ever wonder what your net worth is?  How much money you're making and what you're spending it on?  Where you've been going financially over the past few years?

If so, you should do an Annual Report on yourself.

So what exactly is it and how do you do one?

• "The economic recovery is fake because it's based on debt and loose monetary policy.  It will all soon collapse and the next bear market will be worse than the last one."

• "The national debt is a bomb waiting to explode.  It's unsustainable and will cripple the economy, plunging us into recession."

 

• "All this Q.E. that the Fed is doing is creating a giant asset bubble.  It's about to pop and the economy will collapse."

 

• "With all the money the Fed's been printing, the dollar will be devalued to zero and we are going to have hyperinflation."
  

Do you subscribe to any of these beliefs?

Hello and welcome to Monkeys Throwing Darts.  This site is a project of mine aimed at recording my thoughts on personal finance and investing.

Instead of trying to rehash the same dime a dozen advice you see on the internet, I will try to provide an alternative perspective.  As such, some of my views may be controversial.

The name of this site comes from an idea often thrown around in the world of finance: that a blindfolded monkey throwing darts at pages of stocks can do a better job than the people who get paid to pick stocks for a living.

I am not an expert and have absolutely zero credentials other than trying to apply what I say here on myself.  As such, everything you see here is my opinion and designed for entertainment and/or educational purposes, not professional investment advice.  Read at your own risk.

And now that the legal mumbo jumbo is out of way ...  I hope you enjoy!