I used to read a certain finance blogger’s blog. And, on that blog, this blogger once laid out an excel spreadsheet with his investment contributions and returns using one of MSExcel’s financial functions: XIRR.
XIRR is one of a few ways you can calculate your personal rate of return on an investment. It’s a handy feature if you now how to use it, and if you understand its limitations.
Anyway, this blogger revealed a very impressive 9.75% annual return.
I couldn’t help myself.
I had to replicate it.
Except… I couldn’t.
I tried several different ways but something was always “off” about the calculation.
So… I ran my own compound annual growth rate formula using his numbers and came up with what seemed like the correct answer: 7.08%. Then, I proved it in reverse “by hand” to make sure everything was adding up correctly.
To get the amount of money this blogger said he had accumulated in savings… he actually earned 7.08% per year… NOT the 9.75% he publicized on his blog. The higher number, of course, looks cooler and like I’ve said many a times on this blog… when you’re selling ideas (and ad space on your blog), who doesn’t want to look cooler?
Don’t automatically take a finance blogger’s word for it… even when they show you a fancy excel spreadsheet.
Don’t even take an expert’s word for it.
Not even me.
It’s not that this blogger was being dishonest (maybe he was, maybe he wasn’t, I don’t know — I do know there is a bug in excel that most people don’t know about, and don’t know how to correct, but that’s a story for another day).
And it’s not that an expert (a real expert, not an ex-spurt) is trying to pull one over on you.
Sometimes, people make mistakes.
But… those mistakes can cost you money.
So… test and verify everything.
Even stuff you get from me.
It’s up to you.
Either way, if you want to “test” my ideas and prove them (or disprove them), I suggest you checky the video section on the website. It contains a bunch of “explainer videos” to help you see how investments and insurance work. And, it’s (mostly) stuff you can verify yourself, on your own, with a little elbow grease.
Anyway, here it is and all the maths behind the way I design insurance and savings plans for clients: