- Michael DiBartolomeo
What Is a Realistic Return on Investment?
Everyone’s goal while investing is the same, which is making more money. While several people have enough financial knowledge to determine what is considered a realistic or good return on their investments, some still have trouble figuring that out.
A return on investment is a ratio that can measure the amount of profit that someone earns concerning what they spent. Measuring these factors is essential for those who are considering several investment opportunities or particular investments.
While measuring an exact, realistic return on investment is virtually impossible since not all investments involve the same risks or assets, there are some factors worth considering.
What Is Considered a Realistic Return?
Investing is a significant part of people's financial matters—some even wonder if they can take their pension and invest it themselves.
Many people believe getting 100% of their return investment is considered a good return. While that scenario would be perfect, it doesn’t always happen. A lot of people make poor investment mistakes in hopes of making more money, and that’s where they fail.
A realistic return on investment also involves keeping realistic ‘winning’ expectations. While it may sound disappointing, many ‘great returns’ on investments come down to luck. Some seasoned investors may have the tools to make more accurate predictions, but even then, they cannot predict with 100% accuracy, leaving some room for error.
Overall, a good rule of thumb to keep in mind is that a good return can vary depending on the person’s goals. If someone’s goal is to make an investment to live more comfortably in the future, then a good return can allow them to reach that outcome.
According to the S&P 500 index, the average historical return is approximately 10% without inflation. However, that doesn’t mean that an investor is always going to make 10% on investment return.
In the case of the stock market, people can make, on average, from 5% to 7% on returns. According to many financial investors, 7% is an excellent return rate for most, while 5% is enough to be considered a ‘good’ return.
Still, an investor may make more or less than the average percentage since everything depends on the investment’s circumstances.
Returns on Different Assets
As mentioned before, it may be a bit complicated to determine an exact amount of investment return since it all depends on the circumstances. Generally speaking, the returns on different assets will all be different.
Stocks are some of the most common investment options for people. Overall, the riskier the stock is, the higher the return may be. However, that doesn’t mean that the person has a 100% chance of making high returns if they put all their money into the stock market.
Here, the best thing to do is to evaluate each stock’s potential benefits and not put all the money into riskier options. Having safer investments may also help make money in the long run as long as investors are smart about them.
Many people invest in real estate since it’s one of the most popular methods to make money for the future. However, the returns also depend on the type of real estate the person purchases.
According to historical average returns, return on real estate goes from 8.6% and 10% per year, making it similar to the returns someone may get from investing in stocks.
People look at bonds as some of the safest investment options out there since they receive interest payments for a particular period. In case the bond matures, the investor may receive their full investment.
As with the other two options above, the riskier the bond issuer, the higher the interest payments.
Speculative investments involve assets like precious metals or cryptocurrencies. In the case of precious metals, these tend to keep a stable price, but if any crisis were to happen, the prices for these precious metals could change drastically, causing either a good or bad return.
However, cryptocurrencies are some of the riskiest investment options to consider today since some cryptos, such as Bitcoin, tend to be too volatile for people to make a safe investment. In most cases, the risks from investing in these assets are much higher than the potential earnings.
What Can People Do to Protect Their Money? | Bottom Line
Even the safest investment is going to carry a particular amount of risk. While people can’t expect to get good returns all the time, they can prepare and increase their chances of winning. Others also consider which is better between having one or two savings account to protect their finances better.
Some of the best investment principles involve diversification and time. As long as the investor has a ‘realistic’ mindset, they’re more likely to make better investment decisions. It is also important to take some financial advising in Pittsburgh PA for proper guidance.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax, legal, or investment related advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Historical returns are no indication of future returns in any given asset class.