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What's a Good Return on Investment? - YouTube
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imagine you're about to embark on a high
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seas adventure you've got your map laid
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out and it's time to chart your course
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now to make a decision do you stay close
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to the safety of shore or do you set out
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for deeper waters with the hope of
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making a better time when it comes to
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investing the balance between safety and
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strong returns can feel a lot like
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navigating choppy ocean waters right now
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the stock market is at an all-time high
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while most savings accounts are paying
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less than inflation the destination is
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clear to have our money make more money
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but what's the best path to get there
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what kind of return should you expect
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from each option and how risky are they
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if you don't know it's time to grab your
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Atlas and sextant and start charting a
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course to your financial goals
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[Music]
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the ocean of investing is huge while
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we'd love to discuss everything from
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cryptocurrency to real estate today
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we're exploring investments that are
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both popular and easily accessible to
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the average deck swab let's start by
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looking at the safest calmest course for
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your investment journey Exhibit A the
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savings account safe check liquid check
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but with the average u.s. savings
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account only paying 0.09 percent
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interest you can start to feel like you
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left the anchor down some banks offer
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high-yield savings accounts paying one
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to two percent or more
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but with inflation hovering around 1.6
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percent you don't feel like sailing into
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the wind so while this might be a great
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place to park your rainy day money it's
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not ideal for long-term goals for a goal
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a few years out you could look at a
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certificate of deposit or series I
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savings bond savings bonds currently pay
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a guaranteed 1.9 percent interest and
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can be bought directly from the
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government at Treasury direct.org you
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can start with as little as $25 and save
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up to $10,000 per year but be warned
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that you will be penalized if you
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withdraw your money before one year has
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passed certificates of deposit or CDs
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are issued by a bank or credit union and
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can pay even more between 1 and 3% the
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catch is that there's a minimum deposit
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of at least a few thousand dollars and
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you can't touch your money for a fixed
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period of time between one and five
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years but as long as the bank or
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government sticks around you can expect
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to get your money back with promised
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interest if you're saving up for a big
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purchase like the down payment on a
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house in a few years savings bonds or a
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CD might fit the bill I've asked me
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hearties it's time to head out with open
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waters of public markets that means
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publicly traded investments that don't
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come with guaranteed returns or outcomes
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make sure you've got some life rafts on
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board
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unlike savings bonds Treasury municipal
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and corporate bond funds are traded on
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public exchanges and since supply and
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demand affect their value they have no
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guaranteed return
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one popular bond fund with a little of
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everything has averaged three point six
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eight percent annual growth for the last
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ten years and like a stock fund returns
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fluctuate and can even be occasionally
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negative when bond prices fall think of
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bond funds as a middle ground between
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guaranteed investments and risky ones
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like stocks often they're available to
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you right alongside stock funds through
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a 401k at work or inside an IRA these
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can be especially useful for people who
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are older and can't risk their whole
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nest egg to a stock market crash or they
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might be a great fit if you're saving
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for something in a 5 to 10 year window
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finally let's look way out in deep
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waters the stock market with 16 major
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stock exchanges in the world dozens of
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industries and thousands of companies
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traded across the globe it can all be a
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little overwhelming but a highly popular
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North Star for stock investing is the
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S&P 500 composite index which tracks how
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the largest 500 corporations in America
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are doing over the last 90 years the S&P
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has averaged a growth of nine point
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eight percent per year if you wanted
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your returns to track the S&P you could
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just invest in an S&P 500 index fund
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side note this is why we here at two
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cents use a seven or eight percent
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growth rate whenever we run the numbers
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for long-term investing goals we assume
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a little less than that 90 year average
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with that growth rate why isn't everyone
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hopping aboard
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well the S&P almost never has a single
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year return between five and ten percent
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it's only happened twice since 1928
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if you hopped aboard in January 2018
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you'd have lost six point two four
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percent by the end of the year one year
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before you'd be up nineteen point four
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two percent 2011 had a zero percent
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return and in 2008 it infamously fell
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thirty eight point four nine percent
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whoo that's enough to make anyone
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seasick
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so short term investing with stocks can
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leave you high and dry and is not
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recommended by most experts but if
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you're able to weather the storms
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stay calm during dips and dives over the
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next 10 years or more they may be just
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the ticket so what's the best investment
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it depends
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earning 1 to 4 percent on money that
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needs a safe and steady harbor is
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perfectly appropriate or if you're
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willing to take more risk and invest for
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the long term five to ten percent is
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pretty reasonable for 10 years or more
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while it's possible to do even better
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than this odds are that some extra risks
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or effort will be expected and remember
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to diversify so no single investment can
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save their whole fleet align your
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investments with the right goal hoist
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your sails and you'll stay afloat even
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when seas get stormy and that's our two
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cents thanks to our patrons for keeping
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two cents financially healthy click the
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link in the description if you'd like to
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support us on patreon any of yo songs
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out there have some extra sailing advice
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for landlubbers leave them in the
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comment section below
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you
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