While the S&P 500 includes only 500 stocks that are selected by the S&P 500 Index Committee, they are carefully chosen based on past returns, industry, and liquidity. Investing in individual stocks can absolutely return a yield greater than 5%, but you could also lose your shirt.
​Historical returns on safe investments tend to fall in the 3% to 5% range but are currently much lower (0.0% to 1.0%) as they primarily depend on interest rates. When interest rates are low, safe investments deliver lower returns.
The Best Safe Investments For Your Money
Stocks / Equity Investments include stocks and stock mutual funds. These investments are considered the riskiest of the three major asset classes, but they also offer the greatest potential for high returns.
Top 10 Ways to Earn a 10% Rate of Return on Investment
Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average. Some years will deliver lower returns -- perhaps even negative returns. Other years will generate significantly higher returns.
Underperforming Investments
And if a stock or fund turns in a lower rate of return than the S&P 500 index, it's considered to have underperformed the market. For example, if the S&P 500 rises by 13% for the year, and a stock you're holding rises by 10%, it's a bad rate of return.
To cover each month of the year, you need to buy at least 3 different stocks. If each payment is $2000, you'll need to invest in enough shares to earn $8,000 per year from each company. To estimate how you'll need to invest per stock, divide $8,000 by 3%, which results in a holding value of $266,667.
7 Smart Ways to Invest $1,000
Generally speaking, if you're estimating how much your stock-market investment will return over time, we suggest using an average annual return of 6% and understanding that you'll experience down years as well as up years.
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