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What you see isn't always what you get.

I designed the "Mother of All Thumbwheels" that calculates Social Security benefits and the degree to which we will under- or overshoot our retirement income need. It also illustrates how much we will have in our retirement plans in 10, 20 and 30 years given different monthly contribution levels. It shows, for instance, that $500 a month for 10 years will accumulate to $91,000 if it earns 8 percent over that period. At 12 percent, the same $500 grows to $114,000. In 20 years, the comparable numbers are $294,000 and $494,000 respectively.

But, you may ask, who has been earning 12 percent when the total stock market, over the past five years, has had a compound average return of 2.11 percent per year? The answer would be anyone who just started investing exactly five years ago. Someone who started contributing in April 2007 has had an internal rate of return equal to 20 percent per year.

No way? Yes way. The share price of Vanguard's total market index today is exactly what it was in April 2007 -- $35 per share. Over the five-year span, however, the price has ranged from a low of $22 to a high of $38.

Anyone contributing $100 per month into a total stock market index fund was often buying shares in the mid-$20 range. A share bought for $22 could be sold today for $35, and that is a 59 percent profit. Believe me, a lot of shares over the past five years were bought at prices each month of, say $29, or $25 -- even one month at $20. Only in the July and October quarters of 2007 were share prices higher than today's $35. A share bought at the low point of 2009 for $20 represents a 75 percent profit at today's $35 price.

Calculating the percentage profit we made on each monthly $100 investment and adding them all up brings us to a total account value of $10,272. Over the 60 months of investing, we contributed a total of $6,000. In simple terms, we can say that we had a five-year gain of $4,262 over what we put in, which is a 71 percent return. Divided by five years, it works out to be 14 percent per year.

But that's too simplistic. Remember that not all of the $6,000 was invested for five years. It built up gradually. Only the first $100 deposit was invested for all six years. The last deposit never got invested at all.

On average, then, we had $3,000 invested for the five-year period. Calculating on a napkin, we can see that our so-called "internal rate of return" or the return based on when the dollars were invested looks more like a $4,262 profit on a $3,000 five-year investment. That's a total gain of 141 percent which, when divided by five years works out to 28 percent per year.

When I do the same math on a calculator that takes compound interest into effect for each of the five years, the number works out to be 20 percent per year, but even this doesn't include the reinvested dividends of the total stock market that, during the same period, added almost 2 full percentage points to the gain, bringing the official number to 22 percent per year.

By now, I hope you are getting the point. If we stay the course during major crashes, our new inbound money will have enjoyed a huge rate of return by the time the market "snapback" has run its course.

For those of us with larger account balances reflecting many years of contributions, we, too, can enjoy the smug satisfaction of knowing that the dollars we contributed over just the past five years (our "new money") undoubtedly earned close to 22 percent per year.

Unfortunately, the rest of our money -- our so-called "old money" -- just managed to break even and gave us heartburn in the process. The lesson here is to consider making a distinction between how we invest new, inbound retirement money versus our existing nest egg. New money can be invested more aggressively because it can benefit from volatility as witnessed above. While youth is said to be wasted on the young, at least some of our money can pretend it has 40 years until retirement.

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