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What Stock Market Returns to Expect
Stock market returns rely solely on what types of investments you choose.
The riskier the investments, the more you can gain or lose in any year.
However, if you are investing for a long time horizon, then more risk will
almost surely mean higher returns. Also note that this assumes you invest
in a diversified portfolio (i.e. not just one stock). For example, if you
invest in Company A, which is developing a new technology that hasn't yet caught
on, you could make 1000%s or you could easily lose it all in just one year.
If you held this stock for 10 years, you could end up losing money all ten
years. On the other hand, if you bought Company A and 20 other companies
like it, you could still lose or make quite a bit of money the first year, but
you would not make 1000%s or lose it all. And in the long run, these
stocks together should make you money.There is no hard and fast rule as to
exactly what to expect when you invest. And because the amount of risk you
take in your investments can also not be measured accurately, it is even harder
to know what type of returns to expect.
Here are some rough guidelines as to what type of returns to expect.
Remember, the opportunity to make more money also means the opportunity to lose
more money.
| Risk Level |
Investment
Types 1 |
Short Term
Expected Return
2 |
Long Term
Expected Return
3 |
Comments |
| Low |
Savings
Account, Certificates of Deposit |
0.5% to 6.0% |
2.0% to 5.0% |
|
| Medium |
Bonds, Large
Established Stocks |
-10% to 10% |
5% to 9% |
|
| High |
Small Stocks,
Tech Stocks |
-15% to 15% |
10% to 12% |
|
| Very High |
Emerging
Stocks, Speculative Stocks |
-75% to 75% |
10% to 20% |
|
1
Assumes a diversified portfolio of similar investment types or a mutual fund of
that investment type.
2
Assumes an investment period of approximately 1 year. These expected returns are
based on historical results and actual results could vary by even more.
3
Assumes an investment period of at least 10 years. Any given year could
fluctuate dramatically.
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