What is your investment goals and target ?
What is a reasonable rate
of return to expect on your investment?
Is 10% of return a realistic one? Of course, it also depends on types of
investment and asset class.
If
you're a new investor and you expect to earn, say, 15% or 20% compounded on
your blue-chip stock investments over decades, you are
delusional. It's not going to happen and unrealistic.
One
of the main reasons why new investors lose money is because they chase after unrealistic
rates of return on their investments, whether they are buying stocks, bonds, unit
trust, real estate, ETF or any other types of asset
class.
If I
would have to pick the most common mistakes in our investment strategies, it
would be irrational expectations of the future returns. This comes from several
sources. The main reason being overconfidence bias and the second being a widespread misunderstanding of real returns.
The overconfidence and having an unrealistic rate of return make us change mind so often and shift our goal (expectation on the return of investment ) from time to time. The chasing for “ unrealistic returns
“ also makes us greedy and invest in some so-called “ alternative investment “
which might turn out to be “ scam or Ponzi type of investment scheme “. Beware
of such investment “pitfalls !!”
Are your investment goals realistic?
First, we learned
from a textbook or financial adviser that investing is to beat the inflation !!:
Because we don’t want to end up
like this: the famous " Hyperinflation in Zimbabwe " from Wikipedia :
And with few strike and luck,,, we wanted to beat these so call “ guru or
super-investors “ !!
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| image credit to value-walk.com |
At the end of the day, we might
end up …
Be Realistic on Your Stock Market
Return Expectations !! You may want to read my blog on this (here ).
Over
the long term stocks have provided us with great average return results ...but
this average return masks a great deal of volatility because returns have
fluctuated within a very wide band.
Remember my blog about "Lies, damned lies, statistics !”
Please have
a look on the below chart, can you find any asset class of return more than 20% in 20 years
annualized since 1994-2014?
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| image credit to econompicdata.blogspot.com |
How about your investment return vs market and how often you review or re-visit your investment goals and target?
Cheers !!
Quote Of The Day :
“While some might mistakenly consider value investing a
mechanical tool for identifying bargains, it is actually a comprehensive an investment philosophy that emphasizes the need to perform in-depth fundamental
analysis, pursue long-term investment results, limit risk, and resist crowd
psychology.” By Seth Klarman
Hi STE
ReplyDeleteGood reminder to all of us not to chase after crazy expectations and compound these good one year return over the next 20 to 30 years, because it just gives one a reason to take on more risks in order to justify that high return.
Hi B ,
DeleteYah !! Investment is a long and tough journey ,,, when we look at such time frame of 20-30 years ...like what you said ,, chasing for high return may end up with full of high risk asset in our portfolio and not time proven ..as far as risk-reward is concern !!
Cheers !! :-)
STE,
ReplyDeleteBut, but the seminars and workshops the newbies PAID to attend say its possible!
That's the "use your brain" question!
Should we listen to someone who is burning his evenings and weekends on top of his regular day job as investor/trader/business owner?
Or should we believe retail veterans with decades of battle scars who are coming down the mountain?
Hmm...
Hi SMOL ,
Delete信则有，不信则无...when we believe something ,, we always find ways to confirm our belief ( confirmation bias ) ... we filter those news we want to hear and act on it accordingly... :-)
Cheers !!
Hi STE
ReplyDeleteI read this post of yours with great interest, mainly because of 2 reasons:
1) I happen to be thinking of writing something related to this for my next post. Guess I'll just cancel that. Or maybe just link to your post. LOL.
But your post is very illuminating. Anyone with long term IRR of >10% would qualify as a genius. Either that or the calculation has systematic error.
2) In your chart, healthcare as an asset class has the highest return over 20years?!? Seriously?? That really made me sit up.
If you know the methodology, mind sharing how this 13% annualized return over 20years is calculated for healthcare? I'm guess it's referring either to US or some global index, not SG right?
Curious. Very curious.
Cheers
TTI
Hi TTI,
DeleteYah ! You are right , is data base on US ,,I should have quoted the source of the chart ,,is from Richards Bernstein LLC Adviosr base on data complied by MSCI , Russell , Dalbar, Bloomberg, Standard & Poor , FTSE, FHFA , BofA Merrill Lynch etc,,,
I think you are right,,, is more on US centric data...
Cheers!! :-). Yah ,, anyone could have >10% of IRR in the long run would qualify as genius !!! 👏🏽👏🏽👍👍