What Return Should Investors Reasonably Expect?

There are three types of money. Dead money, barely alive money, and thriving money. Now you might think you never want to have dead money or barely alive money, but in reality; you should be using all 3.

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1. Dead Money
– How much money does your money need to be earning to be dead
– The answer is simple, below inflation
– And as you guys know, inflation is the buying power of the dollar going down by 2-3% each year. ( meaning that every year the dollar is worthless, that why back in 1800s you could go to a store with a dollar and almost walk away with the entire store, but today you can barely buy a bag of chips )

Currently, Inflation is around roughly 2%-3% ( its healthy to use 3% )
– Now this means if you are saving money, your money is dead ( because your money is not making you more than 3% )
– If you have your money in high yield savings or CD, the money is still not good ( because you are not earning more 3% )
– So as an investor you always more money than 3%

However:
– When is it okay to receive less than 3%
– When the money is going to be emergencies
– When the money is for a down payment ( or any upcoming expenses )
– Because although you are losing money every year, it’s the best way not to lose a lot of it with any other investment.

Tip: I have around 12k saved for emergencies.

2. Barely Alive Money
– Now this basically means you are making more than inflation
– But not that much money to be worth bragging about
– This usually ranges from 3%-6%

Why would you invest your money for these returns:
– These investments are usually with bonds and very low-risk investments
– So if you won the game of investing already and you already have a lot of money
– Well 6% of 1 million is $60k in passive income each year ( with low risk )

However:
– If you are just getting started investing this is a bad idea
– Because remember 6% is your return, 2% goes toward inflation, 1% for taxes and fees ( what you have left 3% )
– Usually with people that won that game, they did it with a retirement account

Obviously:
– Investing money and getting back only 2% is a terrible deal

3. Thriving money
– This is money that is doing very very well
– This money is earning a lot of money and is also at a reasonable risk level
– So you can expect anywhere from 8%-12% annually

For example:
– The average return in the stock market over the past 10 years
– Has been around 11%, which means you are doing very good
– So after we adjust for inflation 2%, taxes and fees 1%, you’re left with a solid health 8% over a long period of time

Quick math:
– $500 invested over a 30 year period at a 10% return ( to be more modest) = $1 million and 85k
– At 3% return 294k
– And at a 1% return : 210k

However, there is one more type of investor that should be getting more than 11% or 10%
– That’s the stock picker or mutual funds or value investor
– When you are selecting investing, the goal is to beat the market
– So if you cant earn more than 11% consistently then you have a problem

Tip: mutual funds charge 1-2% to try to beat the market ( and most of them don’t ) – so it’s usually best to get index funds and ETFs that track indexes

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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