168 | A Percent of What?

The entire industry is built on rate of return.

Your portfolio returned 21% last year.

This investment has returned 10% per year for the past 5 years.

We project that you can earn 8% per year over the next 20 years.

But percentages aren't that helpful.

When we're dealing with small numbers, the percent return is useless.

A 20% return on $10,000 means that you have $12,000 and that isn't going to change any lives.

When we're dealing with big numbers, the percent return is equally misleading.

A 20% return on $1,000,000 could be a couple of extra years of spending or a college education or a down payment on a home - significant increases in financial freedom that would still exist at 15% or 17% or 22% or 26%.

All the percent sign does is beg us to compare ourselves to others, which isn't very helpful at any number size.

Or forget what we were aiming for when we decided to invest.