What is a good annualized return? What should I be shooting for? 11%, higher?

[AirJordan]

Just curious, as I'm taking stock of how my portfolio is doing as April ends, and the dreary summer stock market days arise. When I first posted you all bashed me for shooting for 14% returns. I'm 24 btw, and I had always thought beating the SPX meant you are doing pretty well. But, since we have a lot of brain power here, it seems like 12% annualized would be good to shoot for (The SPX averaging 10.8 over the last 60 years).

Sound about right? I'm at 8.1% for the year, but largely because of my three largest holdings
Janus Contrarian, DODFX, and Royce Value Plus have been kicking @ss. Thanks.

[Mwsinron]

I shoot for 7 to 8 percent after inflation.

[brewer12345]

It would be foolish to contemplate target returns without answering two questions:

1) What returns do you need to meet your goals?

2) How much risk are you willing to take?

For example, I know that I can meet my goals with a return of about 4.5% over inflation. Not too hard to achieve, at least historically. But I also know that I have a very large appetite for risk. So I will sometimes accept a large amount of risk if I feel the potential reward justifies it.

[Nords]

Quote:

Originally Posted by AirJordan But, since we have a lot of brain power here, it seems like 12% annualized would be good to shoot for (The SPX averaging 10.8 over the last 60 years).

We used to read a lot of posts like that in 1997-99. Didn't hear so much of that from 2000-2004...

I think you should:
1. Shoot for an asset allocation that meets your tolerance for volatility and stop trying to reach a certain number,

2. Find low-cost investments that match or exceed their applicable benchmarks, and

3. Not double-post between here & FundAlarm. (Most of us read both boards.) Or at least take the time to make your posts a little different and tailored to the audience...

If you want to put that S&P500 performance record into context then I'd recommend reading Dimson & Marsh's "Triumph of the Optimists" and Bernstein's EfficientFrontier.com articles on why good times & low inflation mean lower future returns. 10.8% is only relevant when you consider what the last 60 years were like, and if that's what it takes to return to those "good ol' days" then I'd rather give up the 10.8%. I'm no curmudgeon but I suspect that I have a better appreciation for history than you appear to.

[lswswein]

Quote:

Originally Posted by AirJordan I'm 24 btw, and I had always thought beating the SPX meant you are doing pretty well. But, since we have a lot of brain power here, it seems like 12% annualized would be good to shoot for

Based on the returns you are getting for the year, I think you are aiming too short. Aim for 15% or so, since your are soooo young. Also that way you can double your money every 5 yrs.

Quote:

Sound about right? I'm at 8.1% for the year, but largely because of my three largest holdings Janus Contrarian, DODFX, and Royce Value Plus have been kicking @ss. Thanks.

I think you should dump these dogs. There are atleast 5 Vang funds which have returned more than 10% YTD for 2007. Buy funds which are showing you the returns.

-h
: :

[Milton]

How long is a piece of string? The phrase 'good rate of return' is so subjective that it is essentially meaningless.

Everything is relative. I'd suggest that rather than shooting for some artbitrary return, you'd be better off deciding on a reasonably appropriate benchmark (e.g., one or more indexes) for your particular investments.

[Ed_The_Gypsy]

AJ,

Some of the best money brains in the world figure that the long-term return of the market for the foreseeable future will be about 6.5% before inflation. Regression to the mean. Any time I do better than that, I figure it is making up for the past or pre-paying the future.

I am with Nords...

Quote:

I think you should: 1. Shoot for an asset allocation that meets your tolerance for volatility and stop trying to reach a certain number, 2. Find low-cost investments that match or exceed their applicable benchmarks,

Quote:

We used to read a lot of posts like that in 1997-99.

Nords, that is about the time I figured out that 12% was wildly optimistic. (I am actually doing better than that these days, but I look at it as just a lucky streak and am not counting on it.)

[Mwsinron]

Quote:

Originally Posted by Ed_The_Gypsy AJ, Some of the best money brains in the world figure that the long-term return of the market for the foreseeable future will be about 6.5% before inflation. Regression to the mean. Any time I do better than that, I figure it is making up for the past or pre-paying the future. I am with Nords...Nords, that is about the time I figured out that 12% was wildly optimistic. (I am actually doing better than that these days, but I look at it as just a lucky streak and am not counting on it.)

Who are the best money minds that are claiming this? Id like to read what they have to say.

thanks

[Animorph]

If you diversify like you should, your returns will be limited because all your money won't be in the highest returning asset. Whatever that may be. So don't set your standard so high that you are chasing returns.

I plan on 9% (6% real before inflation), but I try for something above 12% long term.

Dan

[rmark]

"Who are the best money minds that are claiming this? Id like to read what they have to say."

www.scholar.google.com, search under "equity premuim".

[Texas Proud]

Air Jordan...

You are shooting to low.... .I would shoot for 25% a year.... why shoot so low as 11%...

And if you don't get it, blame the funds that you invest in.. it must be their fault for not making you goal...

[Mwsinron]

Quote:

Originally Posted by rmark "Who are the best money minds that are claiming this? Id like to read what they have to say." www.scholar.google.com, search under "equity premuim".

Thanks Rmark

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Sorry to be sarcastic but the timing was so great.

[chinaco]

This is where people look at average returns over a 5 or 10 year and assume it is linear or like a linear regression line.

The S&P has an average historical return (depending on the period of time) of about 11%. But it really depends on when you get on and off of the ride! Plus that average is calculated looking backwards... you know the old caveat about market performance!

At your age, I thought diversification was for the oldsters... Now that I am an oldster... I am looking back at my mistakes and wish that I would have diversified a little more across several asset classes.

Consider yourself doing good if you can squeeze 9%-10%. When you get a little older and change the balance of the portfolio, you may be looking at 8%. Use a declining return on your projections (because you will probably get more conservative as you near retirement). This is likely to give you a more realistic projection of when you will be able to ER (assuming that is your goal).

If this is play money, put it all on lucky number 13 and give the wheel a spin.

[mathjak107]

i need 7-8% to meet our goals. a 50 % mix of stock and 50% mix of bonds,cash, un-listed reits and commodities does the trick with fairly low risk

[Sam]

At 24 years of age, I would shoot for 11%. I don't think it's unreasonable to expect that level of return with an all equities portfolio. Of course, the fluctuation will be more severe than that of a 70/30 or 50/50 portfolio. Higher risk, higher reward. I have no doubt that there are many members here actually achieving that 11% in the past 20 years or more.

[samclem]

lswswein and TexasProud---

As others point out, the idea of "shooting for" a particular return has some problems. There will be an average market return, and that can be had easily by investing in a few index funds at low cost and with some risk, but risk that is fairly low over a large number of years. It will probbaly not be anywhere near 11%, much closer to 4-6% over inflation. Anthing above that can only be gained only by "betting" on particular cap sizes, valuations (value vs growth), countries, industry sectors, industries, or individual stocks. I've made a minor bet in this regard myself--our portfolio is weighted toward small and value stocks. It is very difficult to quantify the risk you might assume in order to try to "bag" a 14% return. I second the recommendations to acquaint yourself thoroughly with the concept of "efficient frontier," William Bernstein's web page and book "The Intelligent Asset Allocator" are good places to start.

[rmark]

I look for 4.5 – 6.0% after inflation while saving, using a stock and reit index fund mix (taxes deferred or paid from work income), based on the simplistic

Expected stock, reit real saving return = (1/pe) – costs
Expected bond, note real saving return = yield – inflation – costs
Realized returns = loss + higher expected, gain + lower expected, rarely smooth growth

1/pe real fund saving
Fund = (5.9 u.s. stk. x .50) + (6.7 int’l stk. x .50) - .25 cost = 6.0
403b = (2.8 reits x .5) + (5.9 u.s. stk. x .25) + (6.7 int’l stk. x .25) - .50 cost = 4.5

This is simply what the broad market average is priced to return, and to expect more requires a non-average portfolio, generally attempted through actively managed funds or through holding a limited number of individual stocks. The first generally can’t beat its costs while the latter may have a much higher or lower final value than the broad market.

[Spanky]

A target return of 11% is doable since it's slightly higher than the historical market return. Since you have a long horizon, you can afford to consume more risk to achieve a higher return. Structure your portfolio with potential high return asset classes. Good luck.

[OKLibrarian]

Our magic number for calulator purposes is 8%. I can't predict inflation so I don't really include it in my calculations (aside from tracking our expenses), but as long as we don't return to the '70s that should beat it by a good 5% or so. I can attain that with the allocation we have in mind (total market index, emerging market index, bond fund, 5% in cash), put the portfolio on automatic pilot, and go work on my golf swing. There are costs beyond transaction fees to chasing double-digit returns, and I really don't want to commit myself to spending that much life energy squeezing out a few more percentage points that I dont really need. Besides--I can still be pleasantly surprised with that allocation, and I prefer underestimating my likely return to the alternative.

I don't care about being freaky rich after retirement--a little low-maintenance house/condo 5 minutes from the golf course and the bookstore, a dependable car, annual trips to a rental in scotland to escape nasty hot oklahoma summers, having the flexibility to take care of our folks in their declining years, plenty of free time to take classes and volunteer for the causes we care about, and having a reserved spot in a nice continuing care community for when we're ready--that's my FIRE dream. 8)

FWIW, YMMV, tag, title, and tax not included, some assembly required, weight loss results depicted not typical.