How Much Should You Expect To Earn From Investing?
Recently, there was a piece of news about a Ponzi scheme operator losing about US$400 million of its investors’ money. The operator had promised a return of 20% a month to its investors and that lure was successful in attracting hundreds of millions of dollars to the scheme.
When I read the news report, I was very surprised to learn that so many people believed in an investment scheme that promised a monthly return of 20%. Even, Warren Buffett, arguably the best investor alive today, only managed to grow his wealth at about 20% PER YEAR over the past few decades.
It made me realize that many people are still unsure of what is a reasonable return they should be expecting from their investments. Here’s a chart to balance out our expectations:
Source: Author’s calculation
The chart shows the reasonable returns we can expect from some of the more common investment options there are in the market. A fixed deposit would give us a return of around 0.3%. If we desire something more, we can turn to the Singapore Savings Bonds, which could give us a reasonable return of just over 2% annually. There is also the Singapore government 30-year bond, which yields around 2.4%.
So, we have so far covered fixed deposits, and government-backed bonds. One other important investment option is the stock market. Over the past 15 years, the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, has generated an annual return of around 7.2%.
If we look at all these possible investment opportunities, none of them have historically produced anything near the 20% monthly return that the Ponzi operator claimed it could.
What I just did is to show the logical and reasonable range of returns investors should expect from various types of financial assets. I hope this can help more people spot a potentially fraudulent scheme.