3% Per Month or 36% Yearly Return Is Not Less

by Dilip Shaw Date: August 28, 2014

Some people call me and they say 3% per month is too less. They want a strategy that can make them 10% per month. Well let me be very clear. There can be no non-directional strategy that can give 10% return per month. You do not want predict the markets direction and still want stellar returns. How is that possible?

Of course if you can predict the direction of the markets, 10% or more returns is possible. In fact if you can predict the direction of the markets you can double your money every week in option trading. (Some out of the money options do get doubled in one day only) But we all know it is impossible to predict the direction of the markets.

So really – if you are one of those who think 3-4% per month is less, read this article to know this is a great return. With the power of compounding this will make you a very rich man in a few years only.

Most traders who take my options trading course ask me what I do with the profits earned with my trades. Well I believe in power of compounding. Frankly right now I do not need the money that I make from trading or the stock markets. I would rather make sure I am compounding it. If I take it out and do not use it, and assuming I keep it in my bank account – it will grow at only 3.5% per year. Compare this to almost 3% per month. So where should I keep my profits? Of course I should reinvest it. If I keep re-investing in my trading account it will grow much faster than if I put it in my bank account or even an FD.

To give you an example lets take one lakh and compound it at 3.5% per year for 10 years. At the end of 10 years it will become Rs. 1,41,060. That is Rs. 41,060 profit after 10 years.

Lets take the same 1 lakh and fix it in a bank for 10 years at 9% per year. At the end of 10 years it will become Rs. 2,36,736. That is Rs. 136,736 profit after 10 years.

Now lets keep the same money in an account that gives a 4% return per month for 10 years. A conservative estimate that you can make from trading per month. At the end of 10 years you will have Rs. 1,10,66,256. Money grows more than 100 times. Rs. 1,09,66,256 profit after 10 years (excluding taxes). Yes a total profit of over Rs. One Crore and Nine Lakhs.

Note: At 3% per month 1 lakh will grow to 34,71,098.71 (34 lakhs+) and at 2% it will be 10,76,516.30 (10 lakhs+). These numbers seem small. But do you think a trader who is making consistent profits will keep his trading account limited to one lakh? NO. As soon as you realize that you can make money trading you will add more money. Now lets see what happens to 5 lakhs in 10 years.

At 4% per month 5 lakhs becomes 55,331,280.40 (5 crores+)
At 3% per month 5 lakhs becomes 17,355,493.57 (1.7 crore+)
At 2% per month 5 lakhs becomes 5,382,581.52 (53 lakhs+)

As you can see even if you can grow your money at 3% per month on a average which is possible – you will have more than 1.7 crore at your disposal in just 10 years to live a great life.

So where do you think I should keep my money? Of course I would be better off to re-invest the profits in future trades.

The sooner you realize this, the sooner you will be able to compound your money and make more in few years. But if you are impatient and want to get very rich very fast, say in just 1 or 2 years from trading – then you are living in fools paradise. This will never happen. In fact I guarantee you this – in pursuit of making a lot of money you will end up losing money.

My course helps traders who want to increase their wealth over time. That does not mean it will take ages before you can see substantial growth in your portfolio. 5 or 6 years should be enough to generate great enough wealth. On top of that you will be a happy man knowing fully well that even if you lose your job, you should be able to make enough money from the stock markets to feed your family if the need be.

Traders also ask me a valid question. What is the guarantee that these strategies will make money. Yes I agree, every trade cannot be winner. But what if most trades are winners and losers are far and few. On top of that I teach adjustments techniques that will restrict the losses to less that a percent. Do your own math. If you win even 6-7 times out of 10 and make 3-4% of the invested capital, and lose only 1% 3 times out of 10, you will still make good money at the end of the year.

An aggressive trader may at times make a killing and my trades will still make the same. But after few years that aggressive trader may have lost a lot of money in some bad trade and may have left the field. I will still be making good money month after month, even after many years.

Yes my trades are boring, but they make money and that is what counts. I don’t do much, not many trades in a month, not much fun – I invest and sit tight – but at the end of the month I end up making money – and that is what I want. Most of the traders who trade everyday may have made some money too, but the day is not far when they will have one big losing month and will kick goodbye forever to the stock markets.

Stock markets are not fun. It is a serious business. And only those who take it very seriously will survive.

If you trade carefully and conservatively you will keep making money – month after month and leave the aggressive trader far behind in a few months. You will also be able to compound your money, because you will know that losses will not exceed a percent. The aggressive trader will be out of business.

There is a saying in Wall Street:

“You can find a bold trader, and, you can find an old trader but you will never find an old and bold trader.”

After 10 years I would rather be an old conservative trader still making money from the stock markets.

And I hope you would also like to be one.

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3% Per Month or 36% Yearly Return Is Not Less

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