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How can you actually get a 10% annual interest rate?
on March 22, 2010
This book is very easy to read and rather well written. Yes, David Bach does not reinvent the wheel in it and he does not necessarily come up with groundbreaking new ways of doing things. Most of the advice that he gives, is logical and many have been saying it for decades. So why should you bother reading this book? Well, if we all know these things, then why are so many of us still struggling? The reason why this should be on your "must read" list is due to the way in which all this "old" information is presented. The book is written in a very motivational manner and is full of real-life examples which make it very easy to see how even minor savings can make a huge impact on your financial well-being in the long run.
Those of you who have read any other of David Bach's books such as the Automatic Millionaire may have been wondering: Isn't he overly optimistic expecting an average 10% return in these economic times? Well, not really. While it may be hard to believe that one can achieve returns of 10%, there are many things one can do in order to achieve them. To those who have a hard time believing this, take a look at Yahoo Finance (or any other financial site) and track the price (including dividends and splits) of the various exchange traded funds (ETFs) that David recommends. You will quickly see, that they've been easily making anywhere from 8% to 27% each year. In fact, a few of them, went through a 4 for 1 split in October 2008. What does that mean? Well, if you had bought a share of a given ETF, all of a sudden, you would own 4 shares because you would be given 4 shares for every share you owned. Granted that the value of the ETF dropped to about half its value right afterwards but that still left you with 4 time as many shares (meaning double your initial value). And if you would have held on to those shares until about now (March 2010) they would be back to their regular price (meaning you just made a 400% return.) That's just because of the economy doing really well? Not really, if you track the ETFs David lists in his book, you will note that those that made that 400% in interest have done so during the middle of the 2009 recession. This is of course just one example, and there's no way to know when other ETFs will split and give you such generous returns. The reason I used this example is to show you that there are ways out there to make a lot more than 10% so the latter is a rather conservative estimate of an average annual interest rate if your money is invested properly (i.e. just follow David's advice). While it's not a guarantee, it is much better than you randomly picking a stock out of the blue. Something that you should also do (if you choose to go with the ETFs) is create an account with one of the many online brokerage companies, that way you only pay around 7 to 10$ per transaction instead of the 20 to 50$ per transaction usually charged by banks when dealing with a broker over the phone for instance.
Bottom line, the information in this book is not necessarily groundbreaking but because of the style it is written in, and some of the valuable advice it gives, I would recommend this to anyone. And don't just blindly take David's (or my) word for it. Take a look for yourself. Follow the various ETFs he recommends online and you will see, that it is very feasable, even in today's market to make around 10% in annual interest and then from time to time you may get lucky and one or two of your investments can turn out over 400% but then again, that is definitively the exception to the rule.
Good luck to all and happy investing!