The thing that the TV shows or movies miss out though is that the banker would have made a bonus of say $500,000, after being responsible for a $500m portfolio, generating $50m in capital gains.
Many investors try to outperform the market by achieving a return that is much greater than 10% a year. A lot professional investor will achieve that goal, earning returns as high as 40% a year.
Although 40% a year is outstanding, it is incredibly hard to maintain consistently over time. This is because the stock market is unpredictable at times.
Nonetheless, if an investor is able to outperform the rest of the market (i.e. achieve a return that is higher than 10% a year), then it is considered to be excellent. In the world of investing, this is known more technically as ‘achieving alpha’.
For the majority of investors, the thing that helps them to get rich is the compound effect. The compound effect occurs when you earn a return on money that you originally invested as well as on the money that you have previously made with an investment.
For example, if an individual invests $10,000 into a stock that earns 10% a year, after 10 years, their investment would be worth around $26,000.
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