Among people under the age of 35, 34% of their wealth is in a retirement account of some type. Among people older than that, almost 45% of their wealth is in some type of retirement account (or about 38% if you annuitize pensions and treat them as lump sum nest eggs that are included in the calculations.) Given that there is such a meaningful percentage of U.S. wealth invested in IRAs and 401(k)’s, and given that retirement accounts frequently mandate mutual fund investing, I have received multiple requests to start covering some of the common mutual fund offerings in retirement accounts because it inevitably becomes such a meaningful percentage of many readers’ overall wealth.
You can rarely go wrong if the basis of your search for a long-term investment hinges on the following question: “What do the profits per share figures look like over time?” It is a single-question inquiry that will exclude some investments that will do well, but it will rarely lead you to an investment candidate that will perform poorly (in other words, this question will yield few false positives.)
Right now, I’d like to talk about one of the stocks that gets excluded under such a screen: Netflix. Over the course of my adult lifetime, it has been just about the best investment you could make. Over the past eight years, it has risen in value from $2 per share to just a tad under $100 per share. Increasing your wealth fifty-fold in eight years is, needless to say, truly life-changing as even a $10k investment in Netflix has grown into half a million dollars.
One of the most important reasons why Generally Accepted Accounting Principles (GAAP) exists is so that there can be a standardized way to track the effects of business transactions that take place over an extended time period. If someone signs up for a $120 one-year magazine subscription, should you report the money as though it arrived in $30 increments every quarter? Should you report $120 in the quarter in which the sign-up occurs? Should you report $120 in the quarter in which payment is received?