Although I already posted this on Facebook (Wayne L Winquist Consulting page), I know some don’t use that resource.  So here are my thoughts regarding investment returns and what you can and should expect…

What returns can you really or should you really expect on your investments? Dave Ramsey is often quoted as saying 12% is a reasonable number. As much as I appreciate Dave’s counsel regarding finances, credit cards and budgets, he and I are not on the same page when it comes to investing. He likes mutual funds and I don’t care for them. Furthermore, I don’t think his 12% returns number is one that you can reasonably expect or plan on for your long term goals.

When looking at returns, always ask three questions:

  1. Over what time period are these returns calculated?
  2. What is the starting date for the returns for this investment as shown?
  3. What are the investments and the risks associated with these investments?

I do think 7-9% is a reasonable expectation over the long term. I define long term as at least ten years. For our own accounts, there are many years when our returns were more than 10%, but I have also had two years in the last 14 where our returns were less than 0% (one year was -2.4% and 2008 was -23.5%. On average, since the beginning of 2003 (14 years), our returns have been about 9%. Bear in mind that a portion of this return was realized from dividend income. The dividends have been reinvested. Currently our portfolio yields 3.5% just in dividends. That means I only need to see growth of about 4-5% over time to achieve a goal of 8-9% returns.

If your investments are not earning a minimum of 7% over a ten year period, then it is time to not only evaluate your investments, it might be time to fire your stock broker.

Robert Schmansky suggests that Dave’s plan for returns is not achievable. The link to the Forbes commentary regarding his thoughts is:

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