“How can I evaluate returns from a dollar cost averaging (automatic investment) into a leveraged fund (e.g. SSO) over a longer term (10+yrs)?”
(Link to Quora question and answer)
Early in my career I wrote an application for “financial criminals” to move people away from “whole life” insurance to “term” insurance, and investing the premium saved by dollar-cost-averaging into their mutual fund. The “illustrations” I produced for them were dramatic. Basically, the “investment income” goes to you and the mutual fund managers and not to the insurance company.
Well, to do this, the “law” demanded lots of small print. But it also demanded I show the cash flows precisely as if they were done into the mutual fund historically. That meant going back the 30 years (the planning window) and saying “if the next 30 years are exactly the same, this is where you would be”.
But it was really pitching “if you’d done this 30 years ago with our mutual fund, this is where you’d be” … and it was dramatically better than what the whole life scenario delivered (unless you used a poorly performing mutual fund … or had zero inflation).
This was 30+ years ago. Back then you had “whole life” insurance salesmen … with a comfortable annual commission stream. It tipped their cart. These insurance salesmen now call themselves “financial analysts”. Follow the money.
None of this would work if we had a “proper” Medium of Exchange (MOE) process … that “guaranteed” zero inflation … all the time and everywhere. If we had that, you could put your surplus money under a rock and do better than either alternative.
Leveraging doesn’t work with zero inflation (i.e. (1+i)^n is always “1.000” for all “n” when “i” is perpetually zero). So don’t expect a “proper” MOE process to be adopted any time soon. It puts the money changers and the governments they institute out of business.
(see http://MoneyDelusions.com (http://MoneyDelusions.com))
Todd Marshall
Plantersville, TX