Alternative Investments

Have you ever wondered how billionaires invest their money? How they continue to get RICHER, while the rest of the world is struggling?

Average investors make a number of mistakes that keep them poor. Much of it is due to a total lack of education and understanding of what investing is all about.

The long-run annualized return for the S&P 500 (including dividends) is 8%. And after fees, most professional mutual fund managers do not beat the S&P 500. Moreover, too many investors do not understand the risk they're asked to take to achieve an 8% return.

The volatility of stock market returns is best measured by looking at the dispersion of returns around the average return. This gives you a clue as to how much risk you have to endure to achieve your expected return. It's called the standard deviation and is a good way to measure risk.

The Standard Deviation of the S&P 500 returns is 19%. This means roughly 70% of the time, the S&P 500 should trade plus or minus 19% around its long-term average return. So if you use Standard Deviation as a gauge of risk, you'll find that the broad stock market pays you only 1 unit of return for 2 units of risk taken.