What is a decent rate of return for investing in the markets?
Don't ever, ever, ever let someone else handle your money, unless you want somebody else have your money. Nobody can guarantee a return on stocks. That's utter bullshit. Stock go up and down according to market emotions. How can your guru predict the market's future emotions? Keep your head cool with stocks. Only buy when you are 'sure' you are not going to need the money in the next 10 years. Buy obligations before stocks, invest in 'defensive' stocks before investing in 'aggressive' stocks. Keep more money in obligations and defensive stock than in aggressive stocks. See how you can do by yourself. Before buying (or selling) anything, think about the risks, the market, the expert's opinion about this investment, etc. Set a target for selling (and adjust the target according to the performance of the stock). Before investing, try to learn about investing, really. I've made my mistakes, you'll make yours, let's hope they're not the same :) Seems like you should be aiming to beat the professionals, otherwise why not let them handle it? So 4.01% is a logical start. Perhaps round that up to 4.05% "If someone is guaranteeing X%, then clearly you can borrow money for less than X% (otherwise his claim wouldn't be remotely impressive).  So why not do that if his 4% is guaranteed? :) Anyway, my answer would be that beating the market as a whole is a ""decent"" rate of return.  I've always used the S&P 500 as a benchmark but you can use other indices or funds." "What do you think is a reasonable rate of return? A reasonable rate really breaks down into three things: opportunity cost, what you need, and risk appetite. Opportunity cost comes into play because whatever returns you make should at least exceed, after expenses, the next best option.  Typically the ""next best option"" is the risk free return you can get somewhere else, which is typically a savings account or some other (safe) investment vehicle (e.g. a guaranteed investment certificate/GIC, bonds, etc).  But, this opportunity cost could also be an alternative investment (e.g. an index ETF), which is not necessarily risk free (but it may represent the next best option). Risk appetite comes down to the amount of risk you are willing to take on any investment, and is completely subjective.  This is typically ""how much can you sleep with losing"" amount. What you need is the most subjective element.  All things being equal (e.g. identical risk profiles, access to same next-best-thing to invest in), if your cost of living expenses are only expected to go up 2% per year, but mine are expected to go up 3% per year, then my reasonable rate of return must exceed 3%, but yours must only exceed 2%. That said, an appropriate return is whatever works for you, period.  Nobody can tell you otherwise. For your own investing, what you can do is measure yourself against a benchmark.  E.g. if your benchmark is the S&P 500, then the S&P 500 SPDR ETF is your opportunity cost (e.g. what you would have made if you didn't do your own investing).   In that way, you are guaranteed the market return (caveat: the market return is not guaranteed to be positive). As an aside.. Don't ever, ever, ever let someone else handle your money, unless you want somebody else have your money. There is nothing wrong with letting someone else handle your money, provided you can live with the triple constraint above.  Investing takes time and effort, and time and effort equals opportunity.  If you can do something better with the time and effort you would spend to do your own investing, then by all means, do it.  Think about it: if you have to spend 1 day a month managing your own investments, but that day costs you $100 in foregone income (e.g. you are a sole proprietor, so every day is a working day), that is $1,200 per year.  But if you can find an investment advisor who will manage your books for you, and costs you only $500 per year, what is the better investment?  If you do it yourself, you are losing $1,200.  If you pay someone, you are losing $500.  Clearly, it is cheaper to outsource. Despite what everyone says, not everyone can be an investor.  Not everyone wants to live with the psychological, emotional, and mental effort of looking up stocks, buying them, and then second guessing themselves; they are more than happy to pay someone to do that (which also lets them point the finger at that person later, if things go sideways)."
"Do you recall where you read that 25% is considered very good? I graduated college in 1984 so that's when my own 'investing life' really began. Of the 29 years, 9 of them showed 25% to be not quite so good.  2013     32.42, 2009     27.11,  2003     28.72,  1998     28.73,  1997     33.67,  1995     38.02,  1991     30.95,  1989     32.00,  1985     32.24.  Of course this is only in hindsight, and the returns I list are for the S&P index. Even with these great 9 years, the CAGR (compound annual growth) of the S&P from 1985 till the end of 2013 was 11.32%  Most managed funds (i.e. mutual funds) do not match the S&P over time. Much has been written on how an individual investor's best approach is to simply find the lowest cost index and use a mix with bonds (government) to match their risk tolerance.  ""my long term return is about S&P less .05%"" sounds like I'm announcing that I'm doing worse than average. Yes, and proud of it. Most investors (85-95% depending on survey) lag by far more than this, many percent in fact)" "I think this is a good question with no single right answer.  For a conservative investor, possible responses to low rates would be: Probably the best response is somewhere in the middle: consider riskier investments for a part of your portfolio, but still hold on to some cash, and in any case do not expect great results in a bad economy. For a more detailed analysis, let's consider the three main asset classes of cash, bonds, and stocks, and how they might preform in a low-interest-rate environment. (By ""stocks"" I really mean mutual funds that invest in a diversified mixture of stocks, rather than individual stocks, which would be even riskier.  You can use mutual funds for bonds too, although diversification is not important for government bonds.) Cash. Advantages: Safe in the short term.  Available on short notice for emergencies. Disadvantages: Low returns, and possibly inflation (although you retain the flexibility to move to other investments if inflation increases.) Bonds. Advantages: Somewhat higher returns than cash.  Disadvantages: Returns are still rather low, and more vulnerable to inflation.  Also the market price will drop temporarily if rates rise. Stocks. Advantages: Better at preserving your purchasing power against inflation in the long term (20 years or more, say.)  Returns are likely to be higher than stocks or bonds on average.  Disadvantages:  Price can fluctuate a lot in the short-to-medium term.  Also, expected returns are still less than they would be in better economic times. Although the low rates may change the question a little, the most important thing for an investor is still to be familiar with these basic asset classes.  Note that the best risk-adjusted reward might be attained by some mixture of the three." For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0%. Source. Currently inflation is around 2%.  So your 2% APY is a 0% real return where the stock market return is 7%.  I.e. on average, stocks have a return that is higher by 7.   If you mix in bonds, 70% stocks to 30% bonds, your real returns will drop to around 5.5%, but you are safer in individual years (bonds often have good years when stocks have bad years).   We're making a bit of a false dichotomy here.  We're talking about returns on stocks in retirement accounts versus returns on CDs in regular accounts.  You can buy stocks in regular accounts and it is legally possible to have a CD in a retirement account.  So you can get bankruptcy protection and tax advantages with a CD. "I'd refer you to Is it true that 90% of investors lose their money? The answer there is ""no, not true,"" and much of the discussion applies to this question.  The stock market rises over time. Even after adjusting for inflation, a positive return. Those who try to beat the market, choosing individual stocks, on average, lag the market quite a bit. Even in a year of great returns, as is this year ('13 is up nearly 25% as measured by the S&P) there are stocks that are up, and stocks that are down. Simply look at a dozen stock funds and see the variety of returns. I don't even look anymore, because I'm sure that of 12, 2 or three will be ahead, 3-4 well behind, and the rest clustered near 25.  Still, if you wish to embark on individual stock purchases, I recommend starting when you can invest in 20 different stocks, spread over different industries, and be willing to commit time to follow them, so each year you might be selling 3-5 and replacing with stocks you prefer. It's the ETF I recommend for most, along with a buy and hold strategy, buying in over time will show decent returns over the long run, and the ETF strategy will keep costs low." Instead of buying in bulk, I invest the money in equity mutual funds, for an expected return of 12%, which is more than inflation. So, I make more returns. But at the cost of a slight risk, which I'm comfortable with. The assumption that house value appreciates 5% per year is unrealistic. Over the very long term, real house prices has stayed approximately constant. A house that is 10 years old today is 11 years old a year after, so this phenomenon of real house prices staying constant applies only to the market as a whole and not to an individual house, unless the individual house is maintained well. One house is an extremely poorly diversified investment. What if the house you buy turns out to have a mold problem? You can lose your investment almost overnight. In contrast to this, it is extremely unlikely that the same could happen on a well-diversified stock portfolio (although it can happen on an individual stock). Thus, if non-leveraged stock portfolio has a nominal return of 8% over the long term, I would demand higher return, say 10%, from a non-leveraged investment to an individual house because of the greater risks. If you have the ability to diversify your real estate investments, a portfolio of diversified real estate investments is safer than a diversified stock portfolio, so I would demand a nominal return of 6% over the long term from such a diversified portfolio. To decide if it's better to buy a house or to live in rental property, you need to gather all of the costs of both options (including the opportunity cost of the capital which you could otherwise invest elsewhere). The real return of buying a house instead of renting it comes from the fact that you do not need to pay rent, not from the fact that house prices tend to appreciate (which they won't do more than inflation over a very long term). For my case, I live in Finland in a special case of near-rental property where you pay 15% of the building cost when moving in (and get the 15% payment back when moving out) and then pay a monthly rent that is lower than the market rent. The property is subsidized by government-provided loans. I have calculated that for my case, living in this property makes more sense than purchasing a market-priced house, but your situation may be different. I beg to differ: Israel has an incredibly well managed central bank, and the usury market is wonderfully competitive.  It's a shame Stanley Fischer has retired.  His management is the case study in central bank management. Rates are low because inflation is low.  The nominal rate is irrelevant to return because a 2% nominal return with 1% inflation is superior to a 5% nominal return with 9% inflation. A well-funded budget is the best first step, so now a tweak is necessary: excess capital beyond budgeting should be moved quickly to internationally diversified equities after funding, discounted and adjusted, longer term budgets. Credit will not pay the rate necessary for long term investment.  Higher variance is the price to pay for higher returns. Markets tend to go up over time, so most things you could buy would make money. A benchmark is meant to represent the market as a whole (or a subset that is relevant to what you are trading), so you can tell if your specific choices helped or hurt your return. As an example, say you pick two financial stocks, Citi and Goldman.  They get you a return of 10% for the year, so you think you made good choices.  But if the financial sector as a whole had a return of 20%, your choices weren't actually that great. To figure this out, you need to know the price per share then vs the price per share now.  Google Finance will show you historical prices.  For GOOG, the closing price on January 5, 2015 was $513.87.  The price on December 31, 2015 was $758.88.  Return on Investment (ROI) is calculated with this formula: ROI = (Proceeds from Investment - Cost of Investment) / Cost of Investment Using this formula, your return on investment would be 47.7%.  Since the time period was one year, this number is already an annualized return.  If the time period was different than one year, you would normally convert it to an annualized rate of return in order to compare it to other investments. Well that depends on how far down it goes. If someone calls for a 75% decline in the market next year, and instead it happens in 3 years, well it's still a good call in my books. If you listend and moved your money out of the market until that 75% fall hit, then invested in the market as it was very low, you'd be looking at an overall return of at least ~30% as the market rebounded which is decent for a 4 year return.  On the other hand if the market rose up 60% over 3 years, then fell 25%, the return on sitting on the sidelines wouldn't be worth it.  **EDIT** Appreciate any comments onto why I was downvoted. When I'm wrong I like to learn why! none of which give a good return if the underlying economy is shit. the underlying economy will be shit if there hasn't been sufficient investment in more productive endeavors. if the underlying economy hasn't been sufficiently capitalized, that will present juicy returns to investors.   it's a complete substance-less threat that if we fail to continue to coddle the rentiers, the economy will collapse because they'll do X with their money (X being something other than maximizing return) "In some respects the analysis for this question is similar to comparing a ""safe"" return on a government bond vs. holding the stock market. Typically, the stock market's expected return will be higher -- i.e., there's a positive equity risk premium -- vs. a government bond (assuming it's held to maturity). There's no guarantee that the stock market will outperform, although the probability of outperformance rises (some analysts argue) the longer the holding period for equities beyond, say, 10 years. That's why there's generally a positive equity risk premium, otherwise no one (or relatively few investors) would hold equities." I'm not 100% familiar with the index they're using to measure hedge fund performance, but based on the name alone, comparing market returns to *market neutral* hedge fund returns seems a bit disingenuous.  That doesn't mean the article is wrong, and they have a point about the democratization of data, but still. "First, to mention one thing - better analysis calls for analyzing a range of outcomes, not just one; assigning a probability on each, and comparing the expected values. Then moderating the choice based on risk tolerance. But now, just look at the outcome or scenario of 3% and time frame of 2 days. Let's assume your investable capital is exactly $1000 (multiply everything by 5 for $5,000, etc.). A. Buy stock: the value goes to 103; your investment goes to $1030; net return is $30, minus let's say $20 commission (you should compare these between brokers; I use one that charges 9.99 plus a trivial government fee). B. Buy an call option at 100 for $0.40 per share, with an expiration 30 days away (December 23). This is a more complicated. To evaluate this, you need to estimate the movement of the value of a 100 call, $0 in and out of the money, 30 days remaining, to the value of a 100 call, $3 in the money, 28 days remaining. That movement will vary based on the volatility of the underlying stock, an advanced topic; but there are techniques to estimate that, which become simple to use after you get the hang of it. At any rate, let's say that the expected movement of the option price in this scenario is from $0.40 to $3.20. Since you bought 2500 share options for $1000, the gain would be 2500 times 2.8 = 7000. C. Buy an call option at 102 for $0.125 per share, with an expiration 30 days away (December 23). To evaluate this, you need to estimate the movement of the value of a 102 call, $2 out of the money, 30 days remaining, to the value of a 102 call, $1 in the money, 28 days remaining. That movement will vary based on the volatility of the underlying stock, an advanced topic; but there are techniques to estimate that, which become simple to use after you get the hang of it. At any rate, let's say that the expected movement of the option price in this scenario is from $0.125 to $ 1.50. Since you bought 8000 share options for $1000, the gain would be 8000 times 1.375 = 11000. D. Same thing but starting with a 98 call. E. Same thing but starting with a 101 call expiring 60 days out. F., ... Etc. - other option choices. Again, getting the numbers right for the above is an advanced topic, one reason why brokerages warn you that options are risky (if you do your math wrong, you can lose. Even doing that math right, with a bad outcome, loses). Anyway you need to ""score"" as many options as needed to find the optimal point. But back to the first paragraph, you should then run the whole analysis on a 2% gain. Or 5%. Or 5% in 4 days instead of 2 days. Do as many as are fruitful. Assess likelihoods. Then pull the trigger and buy it. Try these techniques in simulation before diving in! Please! One last point, you don't HAVE to understand how to evaluate projected option price movements if you have software that  does that for you. I'll punt on that process, except to mention it. Get the general idea? Edit P.S. I forgot to mention that brokers need love for handling Options too. Check those commission rates in your analysis as well." "they said the expected returns from the stock market are around 7-9%(ish).  (emphasis added) The key word in your quote is expected.  On average ""the market"" gains in the 7-9% range (more if you reinvest dividends), but there's a great deal of risk too, meaning that in any given year the market could be down 20% or be  up 30%. Your student loan, on the other hand, is risk free.  You are guaranteed to pay (lose) 4% a year in interest.  You can't directly compare the expected return of a risk-free asset with the expected return of a risky asset.  You can compare the risks of two assets with equal expected returns, and the expected returns of assets with equal risks, but you can't directly compare returns of assets with different risks.  So in two years, you might be better off if you had invested the money versus paying the loan, or you might be much worse off.  In ten years, your chances of coming out ahead are better, but still not guaranteed. What's confusing is I've heard that if you're investing, you should be investing in both stocks and bonds (since I'm young I wouldn't want to put much in bonds, though). So how would that factor in?  Bonds have lower risk (uncertainty) than stocks, but lower expected returns.  If you invest in both, your overall risk is lower, since sometimes (not always) the gain in stocks are offset by losses in bonds).  So there is value in diversifying, since you can get better expected returns from a diversified portfolio than from a single asset with a comparable amount of risk.  However, there it no risk-free asset that will have a better return than what you're paying in student loan interest."