While Warren Buffett is not infallible, he has a pretty good track record when it comes to stock investing. When the Buffettmeister says you need to get at least a 15% return on your investments, it only makes sense to ask why? Who knows, we might learn something. Buffet approaches investing with a business mind, always considering profit margin after the twin killers of inflation and taxation have taken their toll.
The end result is that to build wealth year in and year out, you have to make a high enough return to pay the capital gains tax, cover the annual inflation rate, and still have some left over as profit. We believe Buffett, as does almost everyone, severely underestimates the true rate of inflation but at least he’s thinking in the right direction. In an average year, the government will admit to about a 4% rate of inflation. The actual rate is probably closer to 10% but we’ll use the government number for the upcoming example.
Before anything else happens, you have to figure your investment profit has been reduced by 4%. Let’s say you have a $10,000 profit. Subtract $400 for inflation and you’re already down to $9,600. Next up is the capital gains tax, which can be as much as 40%. You’re going to owe Uncle Obama $3,840 to pay for his next boondoggle. That drops your profit to $5,760 of the original ten grand.
That sucks, doesn’t it? There is a way around it. Visit www.JasonHartman.com to learn how to turn inflation on it’s head and make it turn you a profit with real estate investments. People are doing it daily. Why not you?
The Young Wealth Team