Your annualized rate of return might not be as good as you think.
Yesterday I highlighted some domain name sales from 2004 that seem like incredible bargains today. I also pointed out that, in order to get a 10% annualized return on something you bought for $25,000 17 years ago, you’d need to pocket about $125,000 today.
Many domainers overlook their holding period when considering gains. They just think, “I paid Y and sold for Y times X, so it was a good investment”.
Let’s consider annualized returns for an asset you acquired for $10,000 17 years ago. Here’s how much you’d need to sell the asset for 17 years later to get these annualized returns:
If you invested in the S&P 500 in January 2004, your annualized return, including reinvested dividends, would be nearly 10% and your total return would be over 400%. The stock market got pummeled a couple of years later but has rebound nicely since then.
And had you invested in Amazon.com at the beginning of 2004, your annualized return would be about 27%.
Sure, plenty of investments have gone down since 2004. But comparing investments to major stock indexes, where most people put their investment money, makes a lot of sense. Investing in alternative assets makes sense, but take the time to look at your investment returns compared to more traditional investments.
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