What returns do different breeds of investors expect/hope for?

[joker122]

I once read on this forum that a 10% return in a year was so-so, 14% was good and 18%+ was outstanding.

This is my very crude, basic perception of how to assess an investing year. Can someone help me gain a more informed picutre of the investing world, specifically by contextualizing return expectations for different breeds of investors (i.e. 10% is good for someone just starting out, but poor for an experience investor who reads 4 or 5 publications a day etc.)?

Thanks all.

[DesertCat]

[ QUOTE ]
I once read on this forum that a 10% return in a year was so-so, 14% was good and 18%+ was outstanding.

This is my very crude, basic perception of how to assess an investing year. Can someone help me gain a more informed picutre of the investing world, specifically by contextualizing return expectations for different breeds of investors (i.e. 10% is good for someone just starting out, but poor for an experience investor who reads 4 or 5 publications a day etc.)?

Thanks all.

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It depends upon the year. A 10% return in a year where the stock market returns 30% isn't close to so-so, it's poor. Likewise a 10% return in a year in which the market drops 30% is outstanding. And one year performance can be heavily influenced by luck, you really need to focus on long term performance.

I'm assuming you are talking about individual investor. The long term performance of the market is around 10% per year, maybe a little less. The vast majority of active professional money managers can't even match that. A 10% return per year over long periods (5-10 years) would probably put you near the top (90th percentile) of active individual investors. Not because it's an awesome accomplishment, it's that most people trade too much, think they can time the market, and continually move into the sectors with the hottest recent returns. Regression to the mean kills them.

Just check this board, and you'll regularly find some newbie all excited because they are betting on the latest hot stock, trend, or commodity thinking it can't stop going up.

Any amateur can beat most active investors simply by buying and holding a low cost index fund that simply matches the market. But many people aren't patient enough to accept that, so they trade their way to lousy returns.

[joker122]

DC, I want to thank you for your consistently useful advice in this forum. Please keep it up.

"A 10% return per year over long periods (5-10 years) would probably put you near the top (90th percentile) of active individual investors. Not because it's an awesome accomplishment, it's that most people trade too much, think they can time the market, and continually move into the sectors with the hottest recent returns. Regression to the mean kills them. "

This strikes me as so odd. I am about as new to investing as anyone can be, but the first thing I learned (just from browsing this forum and reading an introductory book to investing, "The Idiot's Guide to Investing") was the importance of portfolio diversity and the value of time. Are 9 out of 10 people really oblivious to this?

[babolat2389]

its not that they are oblivious to diversification in most cases, but that they are tempted by getting rich quick and doing better than average(~10% in the long term) and end up doing significantly worse due to their active trading compared to a buy and hold.

[DesertCat]

[ QUOTE ]

This strikes me as so odd. I am about as new to investing as anyone can be, but the first thing I learned (just from browsing this forum and reading an introductory book to investing, "The Idiot's Guide to Investing") was the importance of portfolio diversity and the value of time. Are 9 out of 10 people really oblivious to this?

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I don't think they are oblivious to the value of time. If you see a fund or a sector going up 40% per year, while your index fund is going up 8%, it's a natural human reaction to try to get on the faster moving horse. The investor thinks they are losing by staying on the 8% nag. What they don't realize is the 40% fund is going to return less than 10% over time, including that 40% "sprint" and they'll be riding a winded animal as it runs out of breath down the backstretch...

[pig4bill]

No, it's because there's an old saying among daytraders - "buy and mold". I would say the average daytrader expects to do well above 30% a year, in any kind of market. Many daytraders are not successful, maybe not most of them, but those are the kinds of gains they are looking for.

Thus, the gains people look for are a reflection of the investing/trading style they use. If the goal is 10 to 15 % a year, then longterm trading will suffice. If higher gains are wanted, then trading will have to be more active.

Don't let anyone tell you the gains you're after can't be done. It just means they can't do it. If you're after 50% gains, someone, somewhere is probably doing it. If you're willing to put in the work, look for them and you just might find them.

[squiffy]

My goal is 10% a year. If I can beat 5% in a CD, I am happy. Though because of the extra risk you are taking you really better be beating 5%.

In general, if you pick individual stocks that are paying a good dividend, like PFE, and which you think are a good long term value, then I think you can at least beat 5% and hopefully get 10%.

It's not that hard to do better. Some years, the market might go up 30%. And with so many stocks going up it's not hard to pick a winner.

It's not that hard to make an individual trade that does well. But it's hard to do that consistently and it's hard not to lose money. It also takes guts to place a large bet, so it's hard to have all your money invested, at least for me.

I get worried about a market correction or a recession.

For example, I made about 9 option trades last year in my main account.

The average gain was 40%, and fortunately not a single trade was a loser. Some gains were 70%, some 50%, but most 30%.

But because of the high risk of options, I only invested about 5K to 10k a pop. I wasn't about to roll the dice and bet 100K, though in hindsight, I should have!!!!!

So out of 293K in the account, most of the time I only had between 5K to 30K invested.

I guess if a recession or major correction hits, I may go back to buy and hold. I know we're not supposed to do any market timing, but it's hard not to fear a downturn after 2002-2003.

[DesertCat]

[ QUOTE ]
No, it's because there's an old saying among daytraders - "buy and mold". I would say the average daytrader expects to do well above 30% a year, in any kind of market. Many daytraders are not successful, maybe not most of them, but those are the kinds of gains they are looking for.


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An SEC study of a day trading shop reported that over 90% of their customers went broke in a single year.

[pig4bill]

My guess is the vast majority of successful daytraders do not trade out of a daytrading shop.

[maxtower]

Does anyone actually even know a successful daytrader?