Investments

1) Realistic Expectations

“If it is too good to be true it probably is.” 

We’ve heard this expression numerous times in various settings. In the investment world, it usually refers to investments that have extremely attractive returns (appreciation plus income). This leads to the question, “what are reasonable rates of returns achievable for long-term investments?”

Jeremy J. Siegel’s (Professor of Finance–Wharton School of the University of Pennsylvania), and author of” Stocks For The Long Run,” measured stock and bond returns from 1802 through 1997. The total return of stocks, made up of dividends and capital appreciation, averaged approximately 8.4% per year and bond returns averaged approximately 4.8% per year over this time frame.

If history is a guide, it is difficult to achieve total returns significantly more than this. A good rule of thumb is 8% to 10% per year is realistic with stocks.  Be cautious and skeptical of investment strategies/services that claim double-digit returns over long periods of time.

Having realistic investment expectations is a powerful tool that can help evaluate the various investment options and strategies available.