Name: What's a Good Return on Investment?
Uploaded: 2020-04-25T15:38:23.000Z
Duration: 6 min 25 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Imagine you're about to embark on high seas adventure.

You've got your map laid out and it's time to chart your course.

Now... to make a decision -- do you stay close to the safety of shore?

Or do you set out for deeper waters with the hope of making better time?

When it comes to investing, the balance between safety and strong returns can feel a lot like

Right now the stock market is at an all-time-high while most savings accounts are paying less

The destination is clear: to have our money make more money.

But what's the “best” path to get there?

What kinds of returns should you expect from each option, and how risky are they?

If you don't know, it's time to grab your atlas and sextant and start charting a course

While we'd love to discuss everything from cryptocurrency to real estate, today we're

exploring investments that are both popular and easily accessible to the average deck-swab.

Let's start by looking at the safest, calmest course for your investment journey.

But with the average U.S. savings account only paying .09% interest, it can start to

Some banks offer high-yield savings accounts paying 1-2% or more, but with inflation hovering

around 1.6% it'll feel like sailing into the wind.

So while this might be a great place to park your rainy-day money, it's not ideal for

For a goal a few years out, you could look at a Certificate of Deposit or Series I Savings

Savings Bonds currently pay a guaranteed 1.9% interest, and can be bought directly from

You can start with as little as $25 and save up to $10,000 per year.

But be ye warned that you will be penalized if you withdraw your money before one year

Certificates of Deposit or CDs, are issued by a bank or credit union and can pay even

The catch is that there's a minimum deposit of at least a few thousand dollars and you

can't touch your money for a fixed period of time between 1 and 5 years.

But as long as the bank or government sticks around, you can expect to get your money back

If you're saving up for a big purchase like the down payment on a house in a few years,

savings bonds or a CD might fit the bill.

It's time to head out into the open waters of public markets.

That means publicly traded investments that don't come with guaranteed returns or outcomes.

Make sure you've got some life rafts on board!

Unlike savings bonds, Treasury, Municipal and Corporate bond funds are traded on public

exchanges, and since supply and demand affect their value, they have no guaranteed return.

One popular bond- fund with a little of everything has averaged 3.68% annual growth for the last

And like a stock fund, returns fluctuate and can even be occasionally negative when bond

Think of bond funds as a middle ground between guaranteed investments and risky ones like

Often, they're available to you right alongside stock funds through a 401k at work or inside

These can be especially useful for people who are older and can't risk their whole

Or they might be a great fit for if you're saving for something in a 5-10 year window.

Finally, let's look way out in deep waters: the stock market.

With 16 major stock exchanges in the world, dozens of industries, and thousands of companies

traded across the globe, it can all be a little overwhelming.

But a highly popular north-star for stock-investing is the S&P 500 Composite Index, which tracks

how the largest 500 corporations in America are doing.

Over the last 90 years, the S&P has averaged a growth of 9.8% per year.

If you wanted your returns to track the S&P, you could just invest in an S&P 500 Index

Side note: this is why we here at Two Cents use a 7 or 8% growth rate whenever we run

the numbers for long-term investing goals.

We assume a little less than that 90 year average.

With that growth rate, why isn't everyone hopping on board?

Well, the S&P almost never has a single-year return between 5 and 10%.

If you hopped aboard in January 2018 you would've lost 6.24% by the end of the year.

So short-term investing with stocks can leave you high and dry and is not recommended by

But if you're able to weather the storms and stay calm during dives and dips over the

next 10 years or more, they may be just the ticket.

Earning 1-4% on money that needs a safe and steady harbor is perfectly appropriate.

Or if you're willing to take more risk and invest for the long term, 5-10% is pretty

While it's possible to do even better than this, odds are that some extra risks or effort

And remember to diversify so no single investment can sink your whole fleet.

Align your investments with the right goal, hoist your sails and you'll stay afloat,

Thanks to our patrons for keeping Two Cents financially healthy.

Click the link in the description if you'd like to support us on Patreon.

Any of ye ol' salts out there have some extra sailin' advice for landlubbers?

Leave them in the comments section below.