How Wealth Works – Jay Conner & John Dwyer

[Music] so you mentioned that most people really don't understand really how wealth works so how about take a few minutes and explain what are the big myths what are the big misconceptions that people typically or some people have in their mind about how wealth works and then after identifying those misconceptions tell us how wealth really works so yeah so there's there's things that we talk to our clients about i think one of the biggest things is you know when i look at someone's um overall position it's something that i call a wealth transfer right and these are money these are monies that we're losing unknowingly and necessarily the government and the institutions on a daily or yearly or over a lifetime basis and we've identified over 37 transfers of wealth that people incur throughout their lifetime now it doesn't mean everybody's going to have 37 they might have one or two right but it can equate to hundreds if not thousands if not millions of dollars to people over their lifetime if they if they look at certain things of how they're positioning their assets or what they're doing so you know one one of the big things that we talk about is there's a huge difference between average rate of return and actual rate return and if you understand what we're taught in the financial industry you know everybody looks at their return on investment so they typically look at money from a rate of return perspective and it's not so much the rate of return that matters is what you can spend right and so we help our clients understand there's a huge difference between average rate of return and actual rate of return and helping them evaluate that from an overall wealth perspective so i'll give you an example okay so in the traditional model jay let's just say that you and i were having a conversation i said jay you know what i can guarantee you an average rate of return on investment over a two-year time period of 20 percent now would you typically invest your money in some a deal like that that sounds great on the surface sounds great on the surface right so let's take a look and we're led to believe that we're going to have more money because i guarantee you an average rate of return now if we look at this from from how this works so let's just say the investment's going to be a hundred dollars jay right and you give me a hundred dollars and the first year i knock it out of the park we get a 100 rate of return we have another tech bubble or you know another new stock that creates a huge rate of return so that that hundred dollars at 100 rate of return for the first year is 200 the second year we start out with 200 we have an oops in the market or we have a correction and we lose 60 percent so that's a 60 loss on the 200 which means that we're that's 120 loss and we're left with 80.

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But if i look at the two-year average rate of return if i subtract if i take the hundred the hundred percent subtract out the sixty that's forty percent divided by two what's your average rate return j i think i lost money okay your average your average rate return is twenty percent but your actual money your what you have your actual return yeah you lost money you end up with eighty dollars so there's a huge difference between average rate of return and actual rate return and math is the average and money is actual and so when we look at and help people understand how wealth works those are the conversations that were taught because in our industry people always talk about what's your average rate of return i don't care what your average rate return is i care what your actual rate return is because the two are completely different that's really uh that should be an aha moment for most people it's a huge problem because we're led to believe right twenty percent that's how everybody talks if you average eight percent ten percent you're going to have all this no you're not you have to in the actual returns will always be less than the average always right so once i understand and i do once once myself and the audience understands that difference you

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