Hi
Is it posible to achieve 10% return p.a. via an investment portfolio?
If yes, how many percentage should be in the stock market, real estate, mutual fund, or any alternative investments?
Is borrowing for investment worth it? How do you leverage other people money to obtain profit? What are the risk that we need to look at?
Thank you in advance.
YES- 10% is possible. So is 20% and so is 8%. 8% is more likely to happen than 10%, and 10% is more likely to happen than 20%.
Heck even 100% is possible (not probable, but possible). Of course -10% is also possible.
10% would require a few things, IMO.
100% equities for better part of a 20-30 year investment period. I think 30 years gives a better chance for 10% returns than 20 years, partly because the extra time will diminish the risks taken.
I think there is a reasonable probability a porfolio of 100% equities could return 10%- with the following asset classes included -domestic large cap, domestic small cap, international large cap and international small cap.
Maybe 40-20-30-10 allocation in above. Add mid caps and I think probability goes up some.
Another way to try and slice it is to consider what risks the above takes, and decide if you want to take more. If you have time, that will lower the risks taken (so 20 years has more risk than 30 years) because time is the single biggest factor in compounding.
Take same portfolio above, and put 10 or 20% into a leveraged position. So if market goes up 7%, the leveraged fund goes up 14%. Funds like ULPIX (ultrabull) do this.
So most of porfolio is shooting for the 7% return, but a small chunk is going for double that, and the overall average turns out to be 10%.
The issue is that the leveraged position will lose 2X as much. So if market tanks 10%, leveraged position loses 20%. This makes the hole to get out of deeper.
My own portfolio is set up so 1/3 of each position will be leveraged or concentrated, and 2/3 of each position is diversified (giving market returns). I use managed funds (most here index, not me).
So my portfolio will be (when fully implemented- I am waiting for a rollover to occur so I can make this happen)-
30% large cap
15% mid cap
15% small cap
15% international large cap
10% international small cap
15% diversified bonds
The 30% position will be 20% diversified and 10% in ULPIX (2X S&P 500)
The 15% mid cap will be 10% diversified and 5% concentrated CGMFX
The 15% small cap will be 10% diversified and 5% concentrated (micro cap of some sort-still looking)
My goal is to get higher returns through the concetrated/leveraged position, but understand the risks I am taking are quite higher than the market as a whole, and no guarantee this will work year in and year out.
I have the diversified positions created already. I need a 401k rollover to finalize (from former employer which was bought out) and I also want the diversified positions to be slightly larger before getting more aggressive.
