Making Your Money Last

Warning: Your Investment Return May Be MUCH Lower Than You Thought

Investment return isn't always what it's cracked up to be. When you break it down, a 7% guaranteed investment return may end up being more like 2.4%.

The smartest investors I know don’t worry about asking what may seem like stupid questions.

After all, putting your hard-earned dollars into an investment isn’t the same as simply stashing it away in a checking or savings account. There are risks involved, and you should know what you’re getting for your money.

Sometimes, when you hear an investment will earn a certain rate of return — whether it’s 5% or 6% or even 10% — you aren’t necessarily getting the whole picture. You need to be prepared to challenge that number and to ask questions that will determine the true bottom line.

For instance, if you’re told an investment will get you a 5% return on your money, you might think it means that if you put in $100,000, at the end of the year you’ll have $105,000. Seems like simple math. But what if the financial professional proposing that product charges an annual fee of 1.5%? Then the net to you is really only 3.5%. And what if the investment has an internal fee? Then your net is even less.

The first question you should ask is, “What’s the net to me?” Or, to be more specific, “What will I actually end up with at the end of the year if I do this?”

The second question you should ask is whether an investment is giving you a return on your money or a return of your money. The wording is subtle, but there’s a difference.

Recently, I had some clients come in — we’ll call them Mary and John — and they told me about a “great” investment they were considering.

It would guarantee them 7% growth every year for the next 10 years, which meant their $100,000 investment would just about double to $200,000. After those 10 years, they would receive $10,000 a year in income for the rest of their lives.

The 7% growth sounded wonderful to them. The thought of doubling their money in 10 years was certainly appealing — as was the idea that they’d get $10,000 a year for life, guaranteed.

But I had questions about the real return for this investment.

Mary and John are both 65 years old. Hopefully, they will live a good long time — at least to the average age of about 85 to 87. But even if they do, after 10 years of getting income, from age 75 to 85, they will have only gotten back their own money — their original $100,000 investment. After 20 years — 10 years of growing the money and 10 years of taking income — the actual return would be zero. And that’s only if they live that long.

Now, let’s say one or both of them should live to 95, and they actually end up getting the full $200,000 in income over the years. Yes, they did double their original investment, but it will have taken 30 years, not 10.

Doubling your money in 30 years is a 2.4% return. Not terrible for a low-risk investment. But not “great.”

With that information in hand, John and Mary potentially could make a better decision about the benefits of this particular investment versus others they might want to consider. It took a closer examination to understand the complete picture.

“Return” is a tricky word in the financial world. Don’t be reluctant to ask a trusted adviser — preferably a retirement professional — to do the math with you, to break it down for you, and to help you understand every option you should consider as a part of your retirement plan.

Kim Franke-Folstad contributed to this article.

Investment advice offered through JCG Investments, LLC. (JCG), an independent registered investment advisory firm. Securities transactions for JCG are placed through TDAmeritrade, Fidelity, and Trust Company of America. Insurance and Annuity products are offered through Monolith Financial Group, Inc. Licensed California Insurance Agent #0777322

About the Author

Jeff Mitchell, Investment Adviser Representative

CEO, Monolith Financial Group

Jeff Mitchell is the CEO and founder of Monolith Financial Group ( He has more than 30 years of experience in the insurance and annuity industry and is an investment adviser representative.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
11 Best Healthcare Stocks for the Rest of 2021
healthcare stocks

11 Best Healthcare Stocks for the Rest of 2021

The 2020s could be the decade of healthcare stocks. Here are 10 companies and one ETF to watch not just for the remainder of this year, but well beyon…
July 13, 2021
9 Best Biotech ETFs to Play High-Octane Trends

9 Best Biotech ETFs to Play High-Octane Trends

Biotechnology is a dynamic but often volatile industry. These biotech ETFs provide a lower-risk way to invest in the space.
July 8, 2021


Know Your Rights in Debt Collection
Financial Planning

Know Your Rights in Debt Collection

A wave of post-pandemic debt collection is coming. Here's how to dispute a debt and protect your assets.
July 23, 2021
The Psychology Behind Your Worst Investment Decisions

The Psychology Behind Your Worst Investment Decisions

We can torpedo our portfolios without even realizing it. Avoiding these seven traps will allow you to make rational investments.
July 22, 2021
Employing an Active Wealth Strategy for Retirement
retirement planning

Employing an Active Wealth Strategy for Retirement

Retirees can benefit by looking at the big picture using an active wealth framework that touches on these key issues: Invest, Spend, Borrow, Manage an…
July 20, 2021
How to Go to Cash

How to Go to Cash

What exactly does it mean to 'go to cash,' and what should you do once you have?
July 19, 2021