If you are investing in stocks in order to get a better return over the years than rolling over CDs at your bank you have realistic investment expectations. If you are hoping that your stock investments will put you on Forbes billionaire list you are mistaken. This article has to do with realistic stock investment expectations. In support of this thesis, Market Watch says that investing in stocks will never make you a billionaire. The article starts with the most recent Forbes list of American billionaires. And it looks at the best likely returns on investment by expert investors.
What is realistically attainable in the stock market?
Buffett is widely regarded to have the best long-term performance of any investor alive today, and over the past 30 years the book value of his company, Berkshire Hathaway BRK.A, +0.30% has grown at a 17.7% annualized rate. Impressive as that is, it’s not nearly high enough to enable you to make it on to the Forbes list – unless you start with a lot of money at the outset.
The threshold to make it on to this year’s list, for example, is $1.7 billion. Let’s say your net worth by the age of 30 is $1 million. A 17.7% annualized return from then until age 65 would produce “only” $300 million.
More importantly realistic investment expectations are that you will match the average equity fund with a roughly 8% per year growth rate. That will grow your million dollars to fifteen million from age 30 to age 65. Billionaires invest in stocks in order to maintain the purchasing power of what they have earned by founding a company, growing it and taking a public!
Expectations and Risk
Common wisdom is that you can accept more risk in your investments when you are young because you have time to make up for your losses whereas you should avoid risk as you approach retirement. The Motley Fool looks at investment risk.
Before you can invest responsibly, it’s important to take a long look at your risk tolerance — that is, how much volatility are you willing to deal with in the pursuit of investment gains? I wish there was a simple answer to this question, but risk tolerance depends on a variety of factors, including your age, your personality, and why you’re investing.
Traditionally risk adverse investors buy bonds but in today’s low interest rate environment you can lose a lot of money investing in bonds just before rates go up.
Realistic Expectations from the Start
Years ago we wrote about learning how to invest.
A beginning investor needs to think of having a stable platform from which to invest. Simply speaking this means paying off credit card debt and having sufficient cash reserves for mortgage payments, food, utilities, and other needs sufficient for several months.
Realistic investment expectations need to include the possibility of substantial losses in the event of a major market crash, war or social unrest. Having your bills paid off and money in the bank for a few months of expenses is the point from which to start investing.
Realistic Stock Investment Expectations PPT