What is a realistic rate of return on investments?
A “realistic” rate of return is the rate of return you can expect to make on your investment in a given period of time, according to a realistic appraisal of what investments are likely to achieve that kind of rate of return.
To put it another way, it's the rate of return you can reasonably expect to earn or lose on your investments over a given period of time. That kind of rate of return is what you're after in terms of return on investments.
What Is A Realistic Rate Of Return On Investments
So, if you put all of your money into one stock, it would be unrealistically high by historical standards to expect to make or lose 10% per year or even 2% per year. But, if you put your money into 10 stocks, it would be really high by historical standards.
What is a realistic rate of return on investments, So, if you put your money into an investment in the stock market, the rate of return on your money is what you want, it's what you expect to earn or lose in the future, so you want the rate of return that is most realistic.
And, for that, you have to compare the rate of return of different investments.
For instance, if you want to know what is a realistic rate of return on investments is and if you invested in the stock market and then took your money and did something else with it, the rate of return on your money would be low, because investments with smaller rates of return have greater variability in their rates of return.
For instance, a stock's rate of return is what you can expect to make if it achieves some amount, over the next ten years or so. Or, put another way, it's the “value” of the stock. For a person, it's easier to perceive than comprehend.
So, if you've invested in a stock, you know what is a realistic rate of return on investments is at any given moment in time.
Historical Stock Returns
We don't have good statistics on what historical stock returns were like, but we can study what the historical returns of other stocks did. And, if we charted those historical returns, we'd see that they tended to tail off.
We can also see how far those returns went, what their moving average was and how close they got to that moving average. It's fairly easy to observe a difference between those historical returns and the historical returns of other stocks, so we can conclude that they are more volatile.
On the other hand, if we look at mutual funds, we don't have to compare the rates of return of the fund to the fund's own returns, because they are required to invest your money in stocks.
Because they do invest in stocks, they have a greater probability of meeting their investment objectives, because they are putting your money to work.
Mutual funds, therefore, are considered less volatile than individual stocks, so they're ideal for long term investing.
So, the question is: what is a realistic rate of return on investments that a mutual fund offers, better or worse than the rate of return a stock offers?
It's not that easy to tell. But, we can look at the risk that a fund carries.
I always think of the risk that a person has as being very similar to the risk that a person takes in investing: you are trusting someone else to use your money without your input or knowledge.
When that happens, you can't control what happens to your money.
Make Wise Decisions
Therefore, in order to protect your money, you have to make wise decisions about when you want to put your money to work, and when you are ready to get rid of that fund and find another one.
If we take a recent example: suppose your stock fund has been up for the past four months and your mutual fund is down for the past three months.
Quarterly Rate Of Return
When we add up the quarterly rates of return for the stock fund and the mutual fund, we get +11% and +5% (slightly higher than the stock fund's higher annualized rate of return), but we also know that the stock fund's quarterly rate of return has been improving over the past three months and the past three years, whereas the mutual fund's quarterly rate of return has been improving less dramatically.
Mutual Fund's Rate Of Return
We also know that the stock fund's long term rate of return is rising much more rapidly than the mutual fund's rate of return. So, we have good reason to believe that the mutual fund's annual rate of return will continue to improve.
And we are right to believe this. While it is possible that the mutual fund's rate of return will improve after the end of each quarter, it is more likely that the stock fund's rate of return will improve during each quarter.
Annualized Rate Of Return
This implies that if we had bought the mutual fund in February, we would have gotten a worse return than the stock fund's current annualized rate of return when we got off-the-books from the fund in August.
This implies that we would have gotten an even worse return when we got off-the-books from the fund in December, and so on.
By taking out of the brakes, we would have had a worse rate of return each quarter than we are currently getting from the stock fund, so when asking what is a realistic rate of return on investments this option would not be as good.
If we had purchased the fund in February, we would have gotten a worse return than the stock fund's current annualized rate of return, when we got off-the-books from the fund in August, and after that, we would have gotten a worse rate of return each quarter than we are currently getting from the stock fund.
Thus, we would have been worse off in each quarter than we currently are.
For other management reasons, like they need to sell a bunch of stocks or because they need to pay off a big bill, stocks will be delisted more quickly than others.
It all depends on the market conditions at the time. Some stocks may take a while to get listed on the “market” because they are important and needed stocks in the market.
Finally, there are stocks that the management considers as experimental stocks, and they may or may not be listed as such on the exchange, so it is worth checking on the status of the stock, in case it was listed.
Most experimental stocks will not be listed any time soon, but will just be listed as “pending listing“. In such cases, you will have to call the brokerage firm to find out the status of the stock.
I am not sure why they would consider it as experimental, but it does not really matter.
If you are not sure of which stock to buy, look at the market conditions. If there is a chance of a sudden market crash, then you should buy stocks that are highly volatile, which are subject to swings of many dollars within minutes.
However, if you are sure that the market will go up in the long run, then you should buy high-quality stocks that have a long history of going up in value over time.
For more information on the stock market and investing in stocks, I suggest you visit this website ” for Investing In Stocks “.
Know How To Pick Winners
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