📈 STEP 6cd — RETURNS NEEDED OR DESIRED

How to Calculate the Exact Investment Return You Need to Reach Your Wealth Targets — And Choose Vehicles That Match That Return

Wealth is not built by guessing. It is built by knowing your target return and designing your portfolio to reach it.

⭐ INTRODUCTION — Why “Desired Returns” Are the Starting Point of ALL Wealth Planning

Most people invest blindly.

They hope their:

401(k)
Mutual funds
ETFs
Retirement plan
Real estate
Side businesses

…will “work out” someday.

But wealthy people operate differently.

They begin with the end:

“What return do I NEED to achieve my goal by my deadline?”
“What return do I WANT to grow beyond my goal?”

They calculate their required return like a scientist.

This step teaches you how to:

Determine the return you MUST earn (required return).
Determine the return you WANT to earn (desired return).
Match returns to the right assets (ETFs, stocks, REITs, real estate, businesses).
Understand realistic vs unrealistic expectations.
Avoid chasing high-risk investments because you guessed your needs wrong.

This step is one of the MOST IMPORTANT in Step 6 — it is the bridge between “dreaming of wealth” and “engineering wealth.”

🎯 SECTION 1 — The Difference Between Required Return and Desired Return

Before you can plan anything, you must understand these two concepts.

1️⃣ Required Return

This is the minimum annual return you need to:

Reach financial independence
Reach your target retirement date
Hit your wealth goal
Pay for a home, education, lifestyle, or business expansion

If you fall below this return consistently —
your goal will not be reached on time.

2️⃣ Desired Return

This is the return you would like to earn to:

Accelerate wealth
Retire earlier
Build legacy wealth
Reduce how much you must contribute
Have more margin for error

Your desired return is greater than your required return.

Why both matter:

Required return = the number that controls your investment discipline
Desired return = the number that motivates your strategy and ambition

You need both to build a real wealth plan.

🔢 SECTION 2 — How to Calculate Your REQUIRED Return (Simple Formula) Calculator at the end of this section

This formula works for ANY goal:

📌 Required Return (RR) = (Future Wealth Target / Current Wealth + Contributions)^(1/Years) - 1

But here’s an easy version anyone can use:

🧮 Simple Required Return Method

1️⃣ Choose your wealth goal
2️⃣ Choose your time horizon
3️⃣ Choose how much you can invest
4️⃣ Use a return calculator or formula

📌 EXAMPLE

Goal: $1,000,000
Time: 20 years
Current savings: $10,000
Monthly contribution: $500

Required return ≈ 8.2% per year

If you only earn 6%, you won’t hit the goal.
At 10–11%, you arrive early.

Why this matters:

Once you know your RR:

You can select the correct wealth-building vehicle
You won’t panic when markets fluctuate
You have a mathematical roadmap
You stop guessing and start engineering wealth

💡 SECTION 3 — How to Calculate Your DESIRED Return

The desired return is:

What return would get you to your goal faster, bigger, or with less stress?

Example:

Required return = 8%
Desired return = 12%

Why choose 12%?

Takes 5–8 years off your timeline
Allows less monthly contribution
Provides margin for bad market years

📊 Example: Required vs Desired Return Impact

Goal: $1,000,000 in 20 years
Contribution: $600/month

This is why desired returns matter —
They build stability, margin, and speed into your wealth plan.

🏦 SECTION 4 — What Returns Different Asset Classes Typically Produce

Before you choose an investment vehicle, you MUST understand its historical return profile.

📈 Stocks / ETFs

Long-term U.S. market average: 9–11%
Aggressive growth portfolios: 12–15%
Individual stock portfolios (skilled investors): 10–20%+

🏠 Real Estate

Cashflow + appreciation + tax benefits
Total blended returns: 8–20%
Active investors (BRRRR, flips): 20–40%+

💼 Business Ownership

Can produce infinite upside
Typical small business: 20–50%
Scalable business: 100%+

🪙 Bonds / Fixed Income

Safe bonds: 3–5%
Risk-adjusted bonds: 4–7%

💵 Cash & high-yield savings

3–5% currently
(not wealth-building alone)

🎚 SECTION 5 — Matching Your Required Return to the Right Wealth-Building Vehicle

This is where most investors fail.

They:

Need 10%
Invest in bonds earning 4%
Wonder why they’re falling behind

Or:

Need 7%
Chase 25% returns
Take unnecessary risk

Here is the proper alignment:

🟢 If Your Required Return is 4–7%

Use:

Index ETFs
Total Market Funds
S&P 500 Funds
Balanced portfolios
REITs
Conservative real estate

Low to moderate risk.

🔵 If Your Required Return is 7–10%

Use:

S&P 500 ETFs
Growth ETFs
International ETFs
Single rental properties
REITs
Cashflow multipliers

Moderate risk.

🟣 If Your Required Return is 10–15%

Use:

Aggressive ETF portfolios
Individual stocks
Multiple real estate properties
House hacking + BRRRR
Starting a small business

Higher skill + moderate risk.

🔥 If Your Required Return Is 15%+

Use:

Specialized businesses
Multiple rentals
Short-term rentals
BRRRR scaling
Value-add real estate
High-growth stocks
Private investment funds

High risk, but massive upside.

📊 SECTION 6 — The “Return Gap” (Wealth Killer)

The Return Gap =

Required Return – Actual Return

If Required = 9%
And Actual = 6%
Your return gap = –3%

Impact?

Your wealth will fall short by hundreds of thousands — or more.

This step alone prevents:

Underperformance
Delayed retirement
Panic investing
Over-leveraging
Poor strategy choice

🧮 SECTION 7 — How Taxes Change Your Required Return (CRITICAL)

Your real return is NOT the return you see on paper.

Your real return is:

After-tax return

Example:

ETF return: 10%
Tax drag in taxable account: –1% to –2%

Real return = 8–9%

To hit a required return of 9%:

You may need a pre-tax return of 10–12%

This is why:

ROTH accounts
HSAs
401(k)s
Real estate depreciation
Section 179 deductions
Business write-offs

…matter SO MUCH.

They lower the required return needed to build wealth.

🧠 SECTION 8 — Case Studies (4 Levels)

🟢 Case Study 1 — Beginner Saver

Goal: $500,000 in 25 years
Contribution: $300/month

Required return: 6.5%

Solution:

Total Market ETF
S&P 500 ETF
Low-cost Roth IRA strategy
Work 401K

No need to chase high returns, But will not be wealth either till late in life.

🔵 Case Study 2 — Family Builder (Age 35)

Goal: $1,500,000 in 20 years
Contribution: $800/month

Required return: 9–10%

Solution:

S&P 500 + growth ETFs
One rental property
Roth IRA + 401(k)
Tax efficiency to reduce drag

The Happy Medium. Still not the best way to go.

🟣 Case Study 3 — Aggressive Investor (Age 28)

Goal: $2,000,000 in 15 years
Contribution: $1,000/month

Required return: 14–16%

Solution:

Entrepreneurship
Real estate BRRRR
Growth stock portfolio
Cashflow multipliers

Any age you can start this. Possibly the better way to go. We can help.

🟧 Case Study 4 — Late Starter (Age 45)

Goal: $1,000,000 in 15 years
Contribution: $500/month

Required return: 15–18%+

Solution:

Real estate heavy focus
Business income / scaling
Roth conversions
Reduce taxes aggressively

Life's Wealth Quest Way

💼 SECTION 9 — Use Cases: When ETFs Are Better and When Mutual Funds Might Still Win

🟢 ETFs Are Better For:

Long-term investing
Portfolio building
Taxable accounts
Young investors
Anyone optimizing for low-cost compounding
Retirement accounts needing flexibility
Factor strategies
Sector strategies

🟡 Mutual Funds Are Better ONLY If:

Your employer’s 401(k) plan ONLY offers mutual funds
You buy Vanguard’s Admiral Shares index mutual funds (rare case)
You invest automatically by dollar amount and want no trading interface

That’s it.

❌ SECTION 9 — Common Mistakes

🚫 Not knowing your required return
🚫 Guessing instead of calculating
🚫 Using the wrong investment vehicle
🚫 Underestimating taxes
🚫 Thinking “average return” equals “your return”
🚫 Forgetting inflation
🚫 Investing too conservatively
🚫 Or investing too aggressively
🚫 Not recalculating annually

📈 STEP 6cd — RETURNS NEEDED OR DESIRED

How to Calculate the Exact Investment Return You Need to Reach Your Wealth Targets — And Choose Vehicles That Match That Return

Wealth is not built by guessing. It is built by knowing your target return and designing your portfolio to reach it.

⭐ INTRODUCTION — Why “Desired Returns” Are the Starting Point of ALL Wealth Planning

🎯 SECTION 1 — The Difference Between Required Return and Desired Return

1️⃣ Required Return

2️⃣ Desired Return

Why both matter:

🔢 SECTION 2 — How to Calculate Your REQUIRED Return (Simple Formula) Calculator at the end of this section

🧮 Simple Required Return Method

📌 EXAMPLE

Why this matters:

💡 SECTION 3 — How to Calculate Your DESIRED Return

​📊 Example: Required vs Desired Return Impact

🏦 SECTION 4 — What Returns Different Asset Classes Typically Produce

📈 Stocks / ETFs

🏠 Real Estate

💼 Business Ownership

🪙 Bonds / Fixed Income

💵 Cash & high-yield savings

🎚 SECTION 5 — Matching Your Required Return to the Right Wealth-Building Vehicle

🟢 If Your Required Return is 4–7%

🔵 If Your Required Return is 7–10%

🟣 If Your Required Return is 10–15%

🔥 If Your Required Return Is 15%+

📊 SECTION 6 — The “Return Gap” (Wealth Killer)

🧮 SECTION 7 — How Taxes Change Your Required Return (CRITICAL)

🧠 SECTION 8 — Case Studies (4 Levels)

🟢 Case Study 1 — Beginner Saver

🔵 Case Study 2 — Family Builder (Age 35)

🟣 Case Study 3 — Aggressive Investor (Age 28)

🟧 Case Study 4 — Late Starter (Age 45)

💼 SECTION 9 — Use Cases: When ETFs Are Better and When Mutual Funds Might Still Win

🟢 ETFs Are Better For:

🟡 Mutual Funds Are Better ONLY If:

❌ SECTION 9 — Common Mistakes

🟢 SECTION 10 — Your Step 6cd Action Plan

✔ Step 1 — Identify your wealth target

✔ Step 2 — Choose your deadline

✔ Step 3 — Calculate your required return

✔ Step 4 — Define your desired return

✔ Step 5 — Match return goals to assets

✔ Step 6 — Use tax strategies to lower your required return

✔ Step 7 — Create a return tracking dashboard (I can build one)

✔ Step 8 — Review and adjust yearly

​

📊 Example: Required vs Desired Return Impact