Understand Your REAL, Real Returns

Just passing this paper along from the comments section.  It’s a very good read on real, real returns on various asset classes.  This is crucial to understanding how different assets generate total returns and how they can be viewed in totality:

“Investors often focus on nominal return — or the return they see quoted in the paper or on a financial news site — on a given investment. Unfortunately, there are several factors that often stand between a nominal-return figure and the building of real wealth. Sophisticated investors frequently refer to the real return, which is a nominal return adjusted to take inflation into account. At Thornburg, we take that analysis a few steps further and adjust stated performance numbers for additional factors — taxes and investment expenses among them. We believe that investors should be attentive to this return figure, the number that’s left after accounting for inflation, taxes, and investment expenses.”

Read it here.

Source: Thornburg



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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Tom Brown

    This sounds VERY much like Vanguard Group marketing material. Those are the same themes they harp on continuously… especially the “management expenses” where they feel they have a big advantage.

  • jaymaster

    Tom, the truth is the truth, even if it is used in marketing.

    Vanguard is more or less owned by the people who invest with them. That’s one reason why they have a cost advantage.

    Profits that would normally go to shareholders in other investment companies MOSTLY go back to Vanguard account holders.

    And as they say, a disclosure: I’ve been investing with them since 1987, and about 60% of my current net worth is in Vanguard accounts.

  • Tom Brown

    I agree! My point was that Vanguard has been saying much the same thing for YEARS. I too own their funds (their marketing material sold me!). Actually John Bogle goes into some detail on these matters, including taxes, inflation, fund turn-over expenses, etc., in his book from the early 90s: “Bogle on Mutual Funds.”

    The charts in the article linked to here though are pretty striking.

  • http://www.pipstoday.com Shawn James

    Hi Cullen!! That’s Nice post thanks for add Pdf that’s really good representation. I think vanguard is good option for us. Vanguard is one of the world’s pre-eminent providers of mutual funds and exchange-traded funds, and with good reason, the company is one of the pioneers of index investing and low-cost mutual funds.

  • Valuation Consultant


    This is what I always tell people who harp on real estate investing because they “know a guy” who now owns 10 properties.

    I tell them that landlording is often a hidden cost because of all the time dealing with tenants and taking care of paperwork or small fixes, not to mention repairs and maintenance.

    They counter with property management but that eats into total return!

    Listening to people laud the beauties of building a rental house collection drives me nuts. I personally just buy REIT indexes if I want exposure to housing. A REIT won’t call me at night when a pipe explodes!

    Had to rant there, I know the people here will actually understand all the costs of rental property, time, lack of diversification, etc.

  • Nils

    What I tended to ignore is the time spent managing my own money. Also a sort of expense, although it’s not deducted from the account I could spent my time trying to make money some other way.