Powered by RedCircle

Join this channel to get access to perks: https://www.youtube.com/channel/UCwb_akM_lZWnSBrVcJMpx6g/join

Debunking Cringy TikTok Financial Math. TikTok has some pretty cringy financial advice, but this terrible math may take the cake. These TikTokers, often people trying to sell terrible financial products, use this terrible math to explain how the markets aren’t as good as investors and Wall Street may claim.

## Social Media

- https://www.facebook.com/wealthyidiots
- https://twitter.com/WealthyIdiots
- https://instagram.com/thewealthyidiots

Join Webull and get FREE STOCKS {Details in Link}: https://act.webull.com/promotion/invitation/share.html?inviteCode=YGUxWYdsbWwj

Disclaimer: Nothing in these videos is intended to be professional financial advice. This is for entertainment and educational purposes only. We hope to motivate the viewer into taking serious steps into improving their financial future, however, a licensed financial advisor should be consulted when ever necessary. The viewer assumes all financial risk on any endeavors they attempt.

## Transcript

so one of the most common arguments that

I hear when we’re talking about anything

debunking anything is people will

respond and say you don’t know enough

about this topic you haven’t researched

enough you should go read X book you

should go watch xvideo you should go see

you know X thing and when I respond back

and I ask like what is it what’s the

thing that I’m missing what’s the

information I need to finish this

thought process out they can’t answer

the question what that tells me when

someone makes that an arguing point is

that they trust this person of authority

and they think this person of authority

must be telling them the truth therefore

since I’m arguing against it I must be

wrong and they don’t trust what I have

to say because they’ve already trusted

this person of authority which is fine

you know everybody by default kind of

collects people of authority that they

believe in and they get behind and they

argue for and that’s totally okay the

thing that I would challenge these

people on is if you cannot articulate

yourself what it is that makes sense

financially like what the item is that

I’m missing then I would recommend that

you don’t actually invest in that

product if you can’t wrap your head

around it enough to be able to explain

to someone else like this is the thing

that you need to do in order to move

forward don’t recommend that product to

other people and you shouldn’t buy that

product yourself go find the data go

find the missing information yourself

welcome back friends and family before

we get into it please make sure to smash

that like button for the YouTube

algorithm it helps us out tremendously

we’re a couple of average

idiots I guess you could say that come

from humble beginnings we were in the

Marine Corps at some point and through

our own research and figuring out this

stuff through our own experience we

figured out how to build good wealth and

consistent wealth over time and we want

to share that information with all of

you at no cost we’re not trying to sell

anything We’re just trying to have a

good conversation about what average and

ordinary people can do to become wealthy

and by liking and subscribing you’re

helping us spread as much of this good

information as possible so thank you so

much for all your support and I greatly

appreciate it so there’s this argument

that I’ve heard and a lot of times it

comes from people who are selling things

and also from other people who aren’t

selling things I think this is just a

hard concept for people to wrap their

minds around and if you’ve been in the

personal finance space for a minute

you’ve probably heard this before and

it’s probably thrown you for a loop it’s

through me for a loop I do a lot of

numbers and stuff for a living so it’s

not anything to be ashamed of but we’re

gonna break down exactly why these

arguments don’t work I’ve got a couple

of tick tocks I found some people who

make this argument so that we can

actually see what it is they have to say

will use their own numbers so we could

prove that their argument doesn’t make

any sense so let’s take a look at those

and I’ll catch you on the other side

when it comes to an example a very

simple example let’s just say you start

off with a hundred thousand dollars in

your account and then something like 911

happens or 08 happens or worse than

market crash in history it’s down 50 now

in year two instead of a hundred

thousand you have 50. in year two what

happens usually when we have recessions

we have expansion let’s just say it’s

springboards right back off the

trampoline and now you make a 100 return

so that means you’re back up to a

hundred thousand right so Shannon how

much did you earn but what was your

average rate of return that advisors are

always telling people you know with

Aaron if you divide those out you get 20

25 I’m sorry 25 is your average rate of

return now I sold you a bill of goods on

guaranteeing you a 25 return if I told

you in the beginning of all this hey

look if I show you

an illustration that has a 25 guaranteed

average return how much would you give

me for that everything I have okay so

now I just showed you a way of

displaying an average rate of return but

you actually earn nothing oh boy let’s

leave it to the infinite banking

specialist to give us terrible financial

information and not be able to math

all right let’s hit another one this is

the difference between average and

actual let’s say you have a hundred

dollars and you invest in something that

goes up 50 one year and then down 50 the

next year you have averaged zero percent

but what your money actually did is went

up fifty percent the first year and then

the next year it went down 50 your money

actually gave you a return of negative

25 these are two completely different

numbers what’s more important to you

your average return or your actual

return

on this one she’s so close she almost

got it but then she missed it all right

let’s go to the next one and we’re going

to talk about the average

rate of return

versus

actual okay

now stay with me on this

if I had a hundred thousand dollars

today and in year one it averaged a

hundred percent

it’s worth two hundred thousand and then

in year two if it went down fifty

percent it’s worth a hundred thousand

in year three if it went up a hundred

percent

it’s two hundred thousand

and in year four if it went down 50

percent

it’s worth a hundred thousand right

and what that says is I started that 100

four years later was worth a hundred but

if I divided by four my average rate of

return is 25 percent

my actual rate of return is zero

sometimes people buy funds based on

average rates of return not actual rates

of return so it’s important that the

education is there oh boy if this guy

doesn’t give off sales Vibes so I

checked out his website and sure enough

he’s a life insurance salesman and

that’s what he’s pushing here and he

almost got it too he was so close but

and he missed it all right so the last

guys last guy he’s not actually a

Salesman but he puts some interesting

numbers down and so I copied those

numbers and put them into a spreadsheet

so we could take a look and I could

break down exactly where all these

people are totally missing it all right

guys if two Investments both average a

five percent return over three years is

one better than the other well that my

friends all depends on whether you like

making money or not let’s take a look

all right guys investment one and two

both average a five percent return but

they get there differently investment

one is down 39 plus 14 plus 40.

investment two is down only seven plus

ten and plus twelve but the returns are

the same because they both average five

percent right wrong very wrong let’s

assume we started with a hundred dollars

in both of them at the end of year one

you’d have sixty one dollars in

investment one then sixty nine dollars

and you would finish at the end of year

three with ninety seven dollars in

investment two you’ve lost a lot less so

you’re only down ninety three dollars

and then you’re up to 102 and up to 114

and a half significantly different

numbers even though the average return

over the three year period is the same

so what’s the takeaway here you win in

investing by not losing investment two

is clearly better than investment one

because investment one was down 39 in

one year yeah but Taylor no one loses

thirty nine percent in one year

well that’s not true on average retail

investors portfolios are down about 39

in 2022 this is according to JPMorgan

analyst a pretty reputable source so how

do you limit your losses when investing

diversify stocks bonds gold and real

estate own them all

so at least our last friend here wasn’t

trying to sell us some kind of insurance

policy after explaining to us this

incorrect math but one thing that you’re

going to notice is all these guys were

very confident in what they were saying

but they’re totally and completely wrong

on how they’re doing their math so the

example that they use makes sense

mentally and you can actually see the

picture of what they’re talking about

and then you discover like oh okay I

could see how this rate of return this

average rate of return that people are

saying might not be correct in fact

someone argued against me using this

exact same argument like you can’t trust

the S P 500 because any investment that

goes down below zero and comes back up

if we say it has a 10 rate of return and

that is an average over the course of

the lifespan it may not actually be a

positive return right and one of the

examples that was used was this one so

this is the most common example that we

see the person starts off with a hundred

thousand dollars they take a fifty

percent hit now they have fifty thousand

dollars but the next year let’s say they

grow a hundred percent event well it

turns out that 100 of 50 is the original

number because each percentage for that

annualized return is not annualized

against the original number it’s

annualized against the number that you

currently have so 100 gain on fifty

thousand puts you back at a hundred

thousand dollars so now we’re all taught

in school if you add a bunch of numbers

up and you divide it by whatever the

bucket is so in some case if we have you

know four and one year to another year

three another year we would add all

those up and then divide it by the

number of years if you were to do math

that way you discover you have a 25

Total return however

you see that right here if we start with

100 Grand we end with 100 Grand

technically our return is zero and so in

the example before we saw it with the

sales person and the lady that was

writing on the paper we could show a 25

return without actually having any

return and that’s the actual versus

average well it turns out when it comes

to percentages like this this is not how

we calculate averages let’s skip over to

the example by the last guy and I can

show you how to actually calculate the

average correctly all right so I copied

his information so 100 dollars to start

you’re one two and three and then

investment one Roi negative 39 and then

1440 and then the money at the end of

each year we see it goes down here and

it starts to climb but it never actually

gets back to a hundred and then he’s

saying if you add up these numbers here

and then you divide them by the number

of years you know how we’re taught

averages in school you get five percent

now down on investment number two we

have negative seven percent ten percent

twelve percent gains and we can actually

see the the dollar amount drops to

ninety three dollars but then year two

climbs to 102 and then your three climbs

to 114. and now we have a positive

number so we actually made 14 on this

investment and if we were to take the um

rois for each year negative seven plus

ten plus twelve divided by three we also

get five percent so this makes it look

like that taking the averages of

annualized returns doesn’t actually

describe what’s happening with your

money that it’s deceiving if we have a

five percent return we could actually

have lost money in some examples and we

could gain money in other examples the

problem with this is that that’s not how

you calculate averages when it comes to

percentages like this and that’s not how

the financial industry calculates

averages so the first guy who’s sitting

there saying like everybody wants you to

you know be lied to it’s like all a

giant conspiracy or maybe it turns out

that they all knew how to do math

correctly and you totally missed it all

together other so I’m going to show you

how to do this math properly so that you

don’t fall for these sort of like scammy

arguments in order to try and sell you

on an investment that isn’t going to

work all right so the first thing that

we have to realize is that um you can’t

add these numbers up in order to get the

total gains right so averages are adding

the numbers up for each year and then

dividing it by the number of years but

as soon as we add these numbers up and

I’m going to do it right here for you

some of these numbers

we get a 15 total gain what we can tell

right off the bat that adding those

numbers up doesn’t create an accurate

representation between 97 on year three

and a hundred dollars to start we lost

almost three dollars right because it’s

97.36 so we lost almost three dollars

the total return is not 15 percent

ah so because of that adding up

annualized returns doesn’t actually work

so what we have to get is the actual

return right we’ll do the same thing

over here if we sum this up

we see a 15 Total return this one is

closer but still not accurate because

this ends with fourteen dollars and

fifty eight cents a hundred I’m sorry

hundred and fourteen dollars and fifty

eight cents all right so our return

should actually be 14.58 percent that’s

the actual return so neither one of

these represent the actual Total return

all right so what do we have to do to

get the total return we need to figure

out how much money we made it or lost in

between year three and year one so let’s

do that real fast we’ll do that for both

of these all right so by simply taking

the final answer and subtracting our

original dollar amount I’ve discovered

we have negative 2.26 in the first

example and positive 14.58

all right so then the next thing we have

to do is figure out our total rate of

return our total rate of return is this

amount divided by our starting amount

so we’ll add that real quick all right

and that’s pretty easy to tell like we

lost over the course of the last three

years we lost 2.64 cents we can tell

that pretty easily and in the second

example over the last three years we

gained 14.58 so our gain was 14.58

whenever you start with a whole number

like 100 it makes it really easy to

break down exactly what these numbers

should be so you should be capable of

seeing when your math doesn’t work

properly

um pretty quickly when you use a whole

round numbers like a hundred a hundred

thousand Etc like these guys are using

and we could see that our actual rate of

return is on our negative 2.46 percent

on the first example and 14.58 on the

second example now you can divide by the

number of years so we could see

averaging now that we have the total

actual return right so adding the

returns from the previous years doesn’t

create the total that’s what we need in

order to make an average so the actual

total rate of return over this time is

negative 2.64 and we divide that by

three so I’ll do that right here

this number divided by three the actual

rate of return for investment one is

negative point eight eight percent so we

lost almost a percentage a year on

average the second one is again take

this number Total return or total rate

of return divided by the number of years

the other one has a rate of return on

average of 4.86 percent so now you can

see the two averages are actually

different they’re not five percent one

is four point eight six percent and this

is an actual uh an accurate

representation of what the average

return is going to be so it’s amazing to

me that this simple mathematical mistake

not understanding how to take averages

of percentages is impacting so many

people in so many arguments like I said

at the beginning if you’ve been in

personal finance for a minute and you’ve

been watching YouTube or reels on

Instagram or Tick Tock you’ve discovered

that people have probably made this

argument and most of the time people

make this argument they have something

to sell you it’s mostly life insurance

people

but the fact that you have people that

are just so confident in their inability

to do basic math when it comes to these

averages is incredible so when the S P

500 and you know people like our channel

are telling you you can get somewhere

between like 10 and 10 and a half

percent what we’re doing to get that

number is to take this the actual

correct approach to getting these

average returns that’s why on the S P

500 you see it consistently moving

upwards we’re taking where it’s at today

and then we’re figuring out what the

gains are in between today and whenever

we’re starting and then we can figure

out the true rate of return over time

and then divide it by the number of

years and that tells us on average that

we can expect to gain so I hope you

learned something today I hope you have

the tools now to go to uh people who are

making poor mathematical arguments to

try to explain away why you should pay

them a bunch of money

um and now you’re also a little bit more

expert than some of these internet gurus

who are running around sharing incorrect

information so if you learned something

today make sure to like And subscribe I

greatly appreciate it I cannot express

to you guys how appreciative I am

everybody that follows us comments

argues all that stuff is making us

better and giving us more information to

be able to excel personal finance and to

be explaining it to you so all that

interaction I greatly appreciate make

sure to stop at wealthyadiance.com we

got new articles coming out and

information and news like uh big changes

coming to mortgages pretty soon you’re

not going to want to miss it so head

over there and thanks for stopping by