Investments | Michael R Lewis, ASJA

August 14, 2013January 3, 2024

Risky Investment Moves That Could Pay Off

This article originally appeared on Investopedia.com on March 14, 2013.
According to a 2012 Employee Benefit Research Institute poll, only one in seven Americans are confident that they will retire with enough money to live comfortably, even though one in three expect to work past the age of 65. The reason: Saving for retirement is increasingly difficult for families faced with the costs of rising healthcare, purchasing a home and sending children to college. In fact, a middle-income household is likely to spend almost $227,000 to raise just one child to 18 years of age, according to a 2011 article in CNNMoney, and that doesn’t include college expenses. The College Board reports that attending a four-year program averages between $22,000 and just over $43,000 per year. Include more than $20,000 per year in healthcare costs for a family of four (including the employer’s portion), and it’s easy to understand why the average American is frighteningly underprepared for retirement.

One obvious solution to this dilemma is to increase the investment return on what you do have saved. The results can be dramatic. For example, if you’re 45 years old and have $62,000 in an account earning 3%, it will grow to almost $112,000 by age 65 with no additional investment. However, if instead it earns 9%, that $62,000 will become a more impressive $347,500 over the same period of time. Striving to increase your investment return is a no-brainer if you want to have a more comfortable retirement, but pulling it off isn’t quite so clear-cut.

7 Mutual Fund Performance Measures & What They Mean

For years, investors, fund managers, and stock analysts have sought reliable indicators to project the future return and risk of owning an individual stock, bond, or a portfolio of securities. The underlying assumptions are as follows:

All investments have inherent risk which is assumed upon ownership.
Returns and risk can be objectively quantified by mathematical analysis of historical results.
The correlation of potential return and underlying risk constantly varies, providing opportunities to acquire investments with maximum potential return and minimal risk.

These assumptions exemplify modern portfolio management and are the basis for the widely used capital asset pricing model (CAPM) developed in the 1960s, which led to a Nobel Memorial Prize in Economics for its creators. Enabled by technology, Wall Street wonks amass and analyze massive amounts of historical data searching for hidden, often arcane relationships to identify undiscovered opportunities for gain without risk. The results of their analysis are often publicly available for use by private investors.

4 Secrets of Investment Success – Tips to Gain Wealth

In the last half-century, the names of Ross Perot, Sam Walton, Bill Gates, and Warren Buffett have appeared at the top of the lists of wealthiest Americans, all of whom have been the subject of biographies chronicling their rise to the pinnacle of riches. A reading of those life histories provides no evidence of membership in secret societies, no teachers or advisers who may have passed along confidential knowledge about savings or investments, no super-human skills, and no extraordinary abilities or qualities beyond intelligence and a strong work ethic.

If there are no secrets to wealth-building, what do successful wealth-builders have in common? What personal attributes are equally valuable in industries as diverse as retailing, software development, and investing? Are these identifiable common traits, in fact, the secrets to their success?