3077: How Can I Get an 8% Investment Return by ESI of ESIMoney on Long-Term Investing Advice

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[00:00:49] In posts like The Best Way to Maximize Your Investment Return and How a Side Hustle Business Can Get You to Financial Independence in 10 Years, I use 8% as a long-term return percentage when doing investment growth projections for stock index funds. Many sites will use 10% since it's around the historical long-term return of the stock market. And of course, Dave Ramsey uses 12%. I like to be conservative, so I use 8%.

[00:01:18] Lately, when I've done this, someone will chime in with a question about 8%. Here are some examples. I would like to know how you can make 8% on your money at a time like this. It seems rather difficult. I'm enjoying your posts, great ideas, but where do you find investments that pay 8% these days? Curious. Where does one get an 8% return every year? Let's talk about that.

[00:01:41] Some of these questions are sincere, like the first two. While some might seem like they might be snide, like the last one, though it's hard to tell. So I thought I'd post some thoughts on an 8% return rate. Then, if anyone asks about it in the future, I can simply point them to this post. Quick Responses to 8% Return Let's begin by documenting some quick responses I've left on other posts. I've responded to a few of the 8% comments above. Here's one of my responses.

[00:02:11] There's a big difference between making 8% on your money at a time like this, and making 8% on your money over a 10-15 year period. In my opinion, you need to invest for the long haul to get decent returns and minimize risk. If you do that, there are several options. And here's another. Well, first of all, I get 10% every year on my real estate investments. Second, and I don't know if you're trying to be snarky or not, but it seems like it.

[00:02:40] You don't get 8% every year in the stock market, if that's what you're asking. Some years you get 20%, some you get 3%, some you lose 10%, and so forth. Invest for a long period of time, and 8% is a reasonable return. Stats will say the average is more like 10%. Those tell part of the story, but not everything. Thoughts about 8% return rate. So, here are my more complete thoughts on an 8% return rate.

[00:03:10] Number one, the 8% return rate I use is based off of primarily stock index fund investments, 75% stocks or higher. Number two, the rate is much lower than what the stock market has shown historically, as noted above, because I like to be conservative. Number three, the number is based on a long-term investment in the market, such as 10 years or more.

[00:03:35] Number four, this return is not guaranteed, just like most investments aren't guaranteed. You can earn 8% over 10 years, but you could also earn 6%, or you could lose money, or you could earn 15%. No one knows. No one knows. That's the nature of investing. Number five, if you're looking for an investment that you can make today that's guaranteed to return 8% to you while also being completely liquid, you won't find it.

[00:04:03] So, if you want to earn 8% these days, which seems like it has a short-term focus, then you're out of luck. Number six, I have never said you would earn 8% every year. If you look at the market, you'll see that some years the returns are high and some are low or even losses. They might average 10%, but there are a few years indeed where the market earns exactly 10%. In my example, 8% is the same way. It's not 8% every year.

[00:04:32] It's an average of 8% over a decade or more. Number seven, while there's data that says 10% or 12% is realistic, we could have losses for the next 10 to 20 years. We also could be above those numbers for the next 10 to 20 years. No one knows. Investing is inherently risky. So, you do it hoping for a good return, but knowing you might lose everything.

[00:04:56] Number eight, you can give yourself the best opportunity to maximize investment returns by putting your money in low-cost index funds. I prefer those from Vanguard. Those cover my general thoughts on why 8% is a valid number and the various caveats associated with it. My personal 8%. But now let's address 8% from a more personal side. We've seen that the stats say it's possible to earn more than 8%.

[00:05:25] But how valid is that for me? Consider the following. I earn 10% or more on my rental properties. This is income alone. On top of that, I have more returns in the form of appreciation. Of course, I invested in these properties over five years ago. This was not something I did last night. And according to an S&P 500 return calculator, over the past 25 years, which is my investing career,

[00:05:52] the S&P 500 has returned 9.436% with dividends reinvested. This includes the 2008 meltdown, of course. I haven't calculated my exact return, but my guess is that I've earned close to this investing in the market. So it can be done. But it has to be over the long term. And it's not guaranteed. Anyone looking for short-term guaranteed investments of 8% are going to be hard-pressed to find them.

[00:06:21] The next 20 years. And to end, it's worth saying again. As for where the market will be in one, three, five, or more years, I have no idea. No one does. My guess is that over 10 to 20 years, it'll be up roughly 8 to 10%. But I could be wrong. Again, no one knows. Hopefully, this will answer any questions people have about why I use an 8% return rate.

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[00:07:20] All das auf einer einzigen Plattform. Deshalb funktioniert die Welt mit ServiceNow. Mehr auf servicenow.de slash AI for People. This article made me think about the goal many of us have in optimizing our investments for the best return. I'm someone who talks about money every day. Shouldn't I try to be a more savvy investor? When I get into these thought loops, I inevitably turn to friends who are much more knowledgeable about investing. And the answer is always the same.

[00:07:49] The likelihood that you're going to beat the market over the long run is slim to none. So why bother? There are people who enjoy the process of stock picking or analyzing different kinds of investments. But I'm not sure that's really how I want to spend my time. I also notice that when it comes to investing, I've put a much bigger focus on how much I'm investing rather than the return on those investments. Think of it this way.

[00:08:13] Let's say there's a super savvy investor who hits big with a 50% return on his $100 investment. He ends the year with $150. What a fantastic return. But I will still make out better with my market matching 10% return if I invest $150. I'll end the year with $165.

[00:08:36] I'm passive about the actual investing part, but I'm very active in the areas of increasing my income and reducing my expenses. This is the aspect of money management that I have the most control over. So I feel that it's worth the majority of my time. I also think keeping things simple makes my strategy more sustainable as it allows me to be consistent. I focus on fully funding retirement vehicles and keeping a healthy emergency or opportunity fund.

[00:09:04] It may not sound as sexy as optimizing investment returns, but it's guaranteed to help me reach my long-term financial goals. That should do it for another edition of Optimal Finance Daily. I'll be back tomorrow as usual, so I'll see you there on the Wednesday show where optimal life awaits.