How much profit is good profit?
I am a true believer that if you want to accumulate wealth, you need to be investing. As you can see from this site, we concentrate on starting an online business to make money so we have money to invest. Investing is an essential part of becoming financially secure.
That really is my wealth plan in a nutshell.
But when thinking about investing, how much should you expect from your investments? It is important to have your expectations in the realm of reality so you know what to expect and can plan accordingly.
Let’s put this goal into perspective…
Jack Bogle And Index Investing
“Jack” or John Bogle, who recently died in January 2019, was the founder of the Vanguard Group. According to Investopedia, “Commonly referred to as ‘Jack’, Bogle revolutionized the mutual fund world by creating index investing, which allows investors to buy mutual funds that track the broader market.”
Basically, Jack Bogle figured out that great returns can be made by just investing in the overall market, like the S&P 500. Instead of handpicking stocks for a portfolio, he decided to just trade the ENTIRE market.
Over the past 90 years, the S&P 500 generated returns just under 10%. So, the idea is, by investing in a way that tracks the S&P 500 as a whole, investors could get these kinds of results as well. This is called Index Investing.
Let’s take a look at what has been happening in the S&P 500 over the past 20 years.
That works out to be +5.13% average annual gains for the S&P 500 over the past 20 years.
Teaching Moment: I think of investing over the long term. So it is important to think in terms of AVERAGE yearly gains. When I said above that the S&P 500 did a little under 10% over the past 90 years… that does not mean the market had returns of 10% each and every year.
The results from one year to the next can be very different. There can be some great years, so mediocre years and even some losing years along the way. But it is the average that counts.
If you look at the photo of the S&P 500 results over the past 20 years, you can clearly see this. So when thinking about investing, don’t think in terms of “making money every year”. Your investing success and profitability is more about what you do over the long term than any one year.
Index Investing VS Active Fund Managers
If you are not familiar with investing, you might think Index Investing is not a good idea. After all, it is common knowledge that Wall Street investors are great at picking stocks and building portfolios with huge profits, right?
Well, that is not really what is going on. As a matter of fact, most fund managers don’t beat the S&P 500 over time.
Check out this article: Active Fund Managers Rarely Beat Their Benchmarks Year After Year
Investors need a benchmark to measure their results against. The most common benchmark is the S&P 500. And the truth is, most active investors, the ones picking and choosing their stocks, do not beat their benchmark over the long term.
Yes, then might have a good year here and there. But over the long term, they fail to outperform the S&P 500 benchmark.
So, isn’t it a better idea to just do like Jack Bogle recommended? Yes, for passive investing, I believe so.
How To Beat The S&P 500
What I want you to get from all this, is that getting returns of 5%-8% is excellent and what should be expected for passive investing like index investing. And even if you are using an active fund manager to manage your investments… you should not expect to beat these percentages (especially when you factor in the commissions you have to pay).
So, when I say I look for gains HIGHER than 5%-8% when active investing, what am I talking about?
I actively trade the Forex market with the goal of beating the S&P 500 benchmark and other investment markets. I do this by Swing trading various currency pairs on the Daily time frame. The process is very simple and literally only takes 1 minute a day.
And when I say “beat the markets”, I’m talking about potentially HUGE gains.
Check this out:
One of my accounts beat the S&P 500, Apple, Google, Netflix and Amazon COMBINED with 5 TIMES LESS investment over the past 5 years. This is way better than 5%-8% returns.
My point is this… you should expect 5%-8% returns on investment over the long term if you invest wisely.
But you can GREATLY OUTPERFORM these percentages if you take a more active role in managing your own investments like I do trading the Forex market.
So, how much profit should you expect from your investments over the long term if you do things right? Answer: 5% to 8% over the long term.
Can you do much better? Answer: Yes, you can because I am doing it.