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What Is Considered a Good Return on Investment?

April 24, 2019 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is Considered a Good Return on Investment?

Many people think of investing as similar to a high-interest savings account–you put money in, and it multiplies on its own. That can be true in the long term, but investing can sometimes be more like gambling—you put money in, and you either double your earnings or leave most of them on the table.

People most often talk about investing as a way to put your money to work, so it’s easy to get the impression that it’s all about growth. The reality is that investment always comes with risk.

The stock market and other types of investments are unpredictable, so it’s important to have realistic expectations about what you can earn. Of course, you want to make sure the risks you’re taking are worthwhile and that you’re earning a reasonable return.

So what is a good rate of return? The answer depends on the type of investment and the time period you’re talking about.

It’s helpful to know what you can expect to earn in general on various investments. Here’s a guide to help you make sense of it:

Why You’re Actually Losing Money if You Don’t Invest It

Before jumping into average rates of return, it’s helpful to consider the ROI of leaving your money in cash. It can feel like you’re keeping your funds safe by storing them in a checking or savings account, or even under your mattress.

But when you do so, you’re actually losing money over time. That’s because of inflation . Over the years, cash loses some of its value—the same amount of money can buy fewer things—as the cost of living increases.

When you leave your money in cash and don’t earn an interest rate that at least keeps up with inflation, you are bleeding dollars. You might not notice it immediately, but most people don’t want to flush their money down the toilet every year. Despite the risks involved, investing has the potential to help build wealth and save for retirement.

What Is a Good Rate of Return for Various Investments?

What is a good ROI differs depending on the investment, mainly because each has a different level of risk. Here’s what you can generally expect for various assets:

CDs

Certificates of deposit (CDs) are considered one of the safest investments out there since the rate you earn is fixed. In exchange, you have to agree to keep your money locked up for a certain time period.

Often, the longer the period, the more you potentially earn. Many CDs require a minimum deposit amount, with higher sums usually associated with higher interest rates.

The lack of risk involved with CDs is also the reason that the returns are lower than most other investments.

If you’re investing for a relatively short-term goal and need the money in a few months or years, this can be a good way to grow it without putting it at risk.

Bonds

Bonds are also considered to be on the safer side of investments. When you buy a bond, you are basically loaning money to a government or corporation. You buy the bond for a fixed term, and your principal is returned at the end.

In the meantime, you get either fixed or variable interest payments as agreed to in the terms. Generally, the interest is higher when the borrower is less stable and lower when it’s a more trustworthy borrower, such as the federal government.

Stocks

You can buy stocks in the form of individual equities, mutual funds, exchange-traded funds, and more. Your potential rate of return will differ based on the types of stocks you purchase and how risky they are.

Generally, the more risk you take, the higher both your potential return and potential loss.

This doesn’t necessarily mean you can put money into the market today and assume you’ll earn a large return on it in the next year. But based on historical precedent , it may be fruitful in the long term, when your money is in the market for enough time to weather any potential ups and downs.

Pay a little, invest in a lot.




Distributor, Foreside Fund Services, LLC

Real Estate

Returns on real estate investing vary widely depending on whether you are investing in a single project or a real estate investment trust (REIT), and what kind of real estate is involved.

The riskier the project, the higher the chance of greater returns and greater losses. Historically, the rate of return on solid properties has been similar to the stock market after inflation, not including debt.

Don’t Forget About Principles of Good Investing

If you’re too focused on reaping sky-high rewards in the short term, you might set yourself up for disappointment. Instead, remembering several basic tenets of responsible investing can help set you up for long-term success.

The first of these is portfolio diversification. It can be a good idea to invest in a variety of assets, compared to just one, and in a variety of stock types, rather than shares in just one company or stocks that are very similar.

That’s because these assets usually react differently to world events and market forces, offering some protection against risk. Having your eggs in one basket might not be a great strategy for financial security.

Another important concept to remember is compound interest. This is the idea that you earn returns not just on the initial amount you invested, but also on the returns that you’ve accumulated to date.

Thanks to the power of compound interest, your money has more potential than if you were earning simple interest, which is just based on the original principal.

Compound interest means that one of the best predictors of good returns is how much time your money spends in the market. So investing early, rather than being obsessed with getting the best short-term returns, may result in solid long-term returns.

Investing with SoFi Invest®

If you’re looking for a smart way to invest, getting started with SoFi Invest makes it easy. With an automated investment account with SoFi you can put your money to work through a diversified portfolio of Exchange-Traded Funds (ETFs) based on your investment objectives and risk tolerance.

You will have complimentary access to financial advisors that can help you map out your goals and make a personalized plan for achieving them. Your portfolio will be automatically rebalanced at least quarterly to make sure you’re on track.

You’ll also have access to SoFi events and career guidance at no charge. And you won’t pay any SoFi management fees, which means you can keep more of your earnings.

Invest in Your Future Today

If you’re looking for investments that will get you a 15% return or more, and pronto, don’t hold your breath. Get-rich-quick schemes are often too good to be true.

Instead, learning more about the relationship between risk and reward can help you understand the different returns you stand to earn through various types of investments.

Think about your investment targets, start early, and diversify. SoFi Invest can get you on the right track to investing responsibly and achieving your goals.

It’s never too early—or late—to start investing and take advantage of compounding returns. Look into investing with SoFi Invest today.


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The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Automated and advisory services offered through `SoFi Wealth, LLC. Active brokerage products offered through SoFi Securities, LLC, member FINRA / SIPC .
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