What is your investment goals and target ?



When you invest your hard earned money, how much of a return do you expect to get from your investment ? Those who are new to investing will often say, “I want to earn a return of 20% to 50% on my investment—every year.” But is this realistic? 

What is a reasonable rate of return to expect on your investment?  Is 10% of return a realistic one? Of course it also depend 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 widespread misunderstanding of real returns.

The overconfidence and having unrealistic rate of return make us change mind so often and shift our goal (expectation on return of investment ) from time to time. The chasing for “ unrealistic returns “ also make us greedy and invest in some so call “ 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 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 :








Then …. We learn how to “ beat the market “ from attending the seminars / talks / investment courses ….





And with few strike and luck ,,,we wanted to beat these so call  “ guru  or super-investors “ !!







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 !”

 ( here )..



Please have a look on below chart , can you find any asset class of return more than 20% in 20 years annualized since 1994-2014 ? 





How about your investment return vs market and how often you review or re-visit your investment goals and target ? 


Cheers !!







“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive 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


Comments

  1. Hi STE

    Good 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.

    ReplyDelete
    Replies
    1. Hi B ,
      Yah !! 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 !! :-)

      Delete
  2. STE,

    But, 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...


    ReplyDelete
    Replies
    1. Hi SMOL ,
      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 !!

      Delete
  3. Hi STE

    I 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

    ReplyDelete
    Replies
    1. Hi TTI,
      Yah ! 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 !!! 👏🏽👏🏽👍👍

      Delete

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