Never never land - that's far too high a return to expect without taking on substantial risk
Call it a 7% solution.
Assume a 7% inflation-adjusted return from a portfolio of U.S. and international stocks, bonds and cash — not overly aggressive, but an expected return that requires taking some risk.
How would I go about investing a sum to get the above?
I would expect a 7% real return over the long term is achievable in a diversified portfolio with an emphasis on equities, with dividends re-invested, implemented via index trackers and ETFs, and with re-balancing. [This is what I do with my investments with satisfactory results.] Prof Jeremy Siegel of the University of Pennsylvania estimates stocks have had an average long term return of 6.5 - 7 % pa after inflation. He expects returns to be somewhat lower in the next couple of decades as does John Hussman http://www.hussmanfunds.com/html/longterm.htm. But you should not do it using only USD denominated investments. If you do this you will be exposed to excessive currency risk. While this may be attenuated in the very long term, if you are overexposed to foreign denominated assets, over short periods, the relative price movement of the EUR to the USD/GBP/JPY may significantly influence your returns.I find myself agreeing with jpd and Jim2007.
I agree with Jim that 7% after all deductions is definitely achievable
Also this article isn’t investment advice; it’s just some guy playing about with a compound interest calculator. His premise is that if you invest 10 grand and then 320 per month (where did he get this figure?) and get the average stock market return of 7%, year in year out, you end up with million in 40 years time. He could just have easily said start with 1 dollar or euro, invest 320 per month and increase this amount by say 4% pa to look after inflation and you may also get a million in about 40 years. If you get a spreadsheet and play around with the figures you’ll come up with something equivalent.Link I based my query on.
http://www.marketwatch.com/story/start-with-10000-and-retire-a-millionaire-2011-03-25
I find myself agreeing with jpd and Jim2007.
I agree with Jim that 7% after all deductions is definitely achievable, and I have exceeded this amount for many years now. But I would also agree with jpd that this would not be a low risk investment in the eyes of the general public.
I follow the value investing approach too, and was introduced to it by my father who has used it for many successfully. It took a lot of time to learn and understand it, and also some costly mistakes along the way. To this day I spend a lot of time every week on investment research as I am always looking for new opportunities.
Bottom line is that there is no easy way to achieve the envisioned returns, it will take a lot of time and certain level of risk.
Hey Firefly, I'm quite happy to offer info on my experiences over the years.
The Intelligent Investor is an excellent book and one that my father introduced me to years ago. Once you are familiar with its content I would suggest getting the classic 1934 edition of "Security Analysis" by Graham/Dodd. It is not for beginners and you should take the approach of studying it and taking notes, rather than just reading it. I don't think it is still in print but I have found bookfinder.com very good for finding somewhat rare books. There are probably endless amounts of other books on value investing, but I think if you get to the point of understanding the above 2 you won't really need any others, it could just end up being confusing and possibly even wrong information. What I have found beneficial over the years is to simply pick up one of the books and re-read a couple of chapters, which reminds me that I haven't done this in a while. You are better off spending more time reading annual and quarterly reports than reading possibly too much about value investing.
Applying these techniques to funds and ETFs can be very tricky and time consuming as you would need to analyse the underlying companies individually. That doesn't mean that ETFs are not a good way to invest, their obvious benefit is the fees and purchase costs, and quite importantly the diversification they offer if you have a limited starting capital. Personally I mainly invest directly in equities after applying some basic value investing techniques. If I am not mistaken, it is mentioned in one of the books that tracker funds are useful to those that are not willing or able to put in the time and effort necessary to perform the research and analysis.
Best thing you can do is read the two books and then start analyising and keeping track of your findings in a spreadsheet.
It is and has been perfectly possible to achieve an average real return of 7%pa.
You don't need to pick stocks as an index approach is available which will achieve the same effect but with less risk.
The annual management charge is 0.5%pa.
Thanks Chris, will do. Just as a matter of interest, when you do buy shares, do you buy outright or put in place a sell order should they fall below a certain price? I know individual shares are not to be discussed, but I am thinking of purchasing some shares in a well-known holding company associated with the "Intelligent Investor" book. I see this as one way to easily diversify some of my holdings. They're humble "B" shares by the way!
The highest expected return comes from buying stocks which are both small and value.
Thanks Chris,Just remember the currency risk with that company that won't be named.
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