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ChooseFI | Financial Independence Podcast

347 | How to Calculate Investment Returns

ChooseFI | Financial Independence Podcast

Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc

Investing, Business, Careers

4.85.2K Ratings

🗓️ 18 October 2021

⏱️ 49 minutes

🧾️ Download transcript

Summary

Most investors think a 50% loss needs a 50% gain to recover. They're wrong — and that math mistake can destroy retirement plans. Brad and Jonathan unpack the deceptively simple mathematics of percentage returns and why statistical blind spots lead to massive financial miscalculations. The conversation centers on how losses hit harder than equivalent gains, why the sequence of returns matters more than average returns, and what safe withdrawal rates really mean when markets swing violently. They break down Compound Annual Growth Rate (CAGR) and show how controlling expenses offers more certainty than predicting market performance. The episode concludes with a segment on teaching entrepreneurship to kids as a foundation for financial literacy. Chapters: Understanding Returns [00:01:31] How percentage returns work and common misconceptions. Percentage Loss vs. Gain [00:06:08] The asymmetric math behind gains and losses; a percentage loss affects initial investments more drastically than an equivalent gain. CAGR Explained [00:10:21] Compound Annual Growth Rate and its significance in investment planning. Safe Withdrawal Rates [00:15:04] The 4% rule and safe withdrawal strategies for retirement planning. Entrepreneurship for Kids [00:33:40] Teaching children entrepreneurial skills and how it translates to financial literacy. Key Quotes: "A 100% return is an extra $1,000; a 200% return means an extra $2,000." [00:05:06] "To recover from a 50% loss in the first year, you need a 100% return in the following year." [00:09:19] "The timing of market fluctuations is crucial for your investment outcomes." [00:13:05] "Control over your expenses is key to financial independence." [00:22:30] "Understanding the unknowns of the future is vital for financial planning." [00:32:35] Related Resources: Simple Startup Course M is for Money Book Mentioned Episodes: Making Portfolio Adjustments with Big Earn [00:24:54] Flexible Spending Rules [00:26:41] Keys to a Successful Retirement with Fritz Gilbert [00:27:21] Kids and Entrepreneurship - Annalise [00:40:11] Kids and Entrepreneurship - Ariana [00:40:11] ▶ Listen Next: Ep. 349 — Investment Returns: Paper vs Real Returns Explained | Essential Listening

Transcript

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0:00.0

You're listening to Choose FI Radio.

0:10.0

The blueprint for financial independence lives here.

0:20.8

If you're looking to unlock the secrets to financial independence and early retirement,

0:25.8

you're in the right place.

0:27.7

Stay tuned and join a community of like-minded people who are getting all fans to hear

0:32.5

and taking control of their lives in the pursuit of financial independence.

0:36.7

Choose FI, your home for financial independence online.

0:43.7

Alright guys, very excited to dive into this week's episode and help me with this.

0:55.6

I have my co-host Brad here with me today.

0:57.6

How you doing buddy?

0:58.6

Hey Jonathan, I am doing quite well.

1:00.6

Yeah, what's going on in your world?

1:02.3

Well I took my wife to breakfast this morning and talking about awesome date conversation.

1:07.4

We started talking about numbers, talking about stats a little bit and I realized mid-conversation

1:12.8

that there is a hole in all of my logic, all of our logic.

1:17.9

Everything you've learned in your entire life, there's a lot of things.

1:20.4

Everything's two plus two is not four.

1:22.3

It's not four.

1:23.3

Alright, here it is.

1:25.3

I have no idea where you're going with this but I'm on the edge of my seat.

1:31.3

Alright, you start out with this $1,000.

1:34.3

You have $1,000.

...

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