# 10% ROI in a year



## mastercool (Apr 2, 2012)

So I'm pretty sure this question was poised about a week back but I'd like to bring it up again.

I'm sure everyone has heard this saying before: If you invested $20,000 in year 1, 10% ROI compounded annually works out to be $XXX,XXX,00 total.

Now if I may ask, where are you going to get 10% ROI per year every year? Stocks fluctuate, so it's pretty difficult getting this return every year.

Does anybody else have any ideas?


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## lefilter (Mar 4, 2011)

That's a legitimate question. Sadly, I think this 10% rule is used way too often by financial advisors too lure investors. Of course, getting people to invest is not a bad thing, but this 10% rule gives false expectation about what the average investor should expect, and, more importantly, about how much he should save each year in order to be well enough at retirement.

Yes, the maths are ok. A 10% annualised investment will double in value in about 8 years, considering every dividend or interest payed are revinvested at 10%. But given a standard, moderate risk allocation of bonds and stocks, it's a hard target to shoot for. The Teachers pension fund did it : they released yesterday an annualised return of 10% since 1990. But its a whole team of pros, and they include investments like real estate, private equity and infrastructures. So is it possible? Yes. Sould it be that widely used by advisors and is it easy to reach? not IMHO.


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## cash (Mar 5, 2011)

The 10% is taken from historical averages. 

Look at this spreadsheet: www.libra-investments.com/re01.htm Click the 6th bullet point that begins with "An Excel spreadsheet (right click to save) of annual returns, both nominal and inflation adjusted, has been updated to include 2011 returns for many investable asset classes."

The spreadsheet goes back to 1970, if you average the returns over this period you get:

TSX 10.8
S&P 500 11.0
WILSHIRE 500 13.2 
MSCI EAFE 11.5
MSCI EMERGING 15.5 
GOLD 12.2
CDN SHRT BONDS 8.8
CDN LNG BONDS 10.8
ALL CDN BONDS 10.1
REAL RETURN 8.9

Pretty close to 10%.


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## fatcat (Nov 11, 2009)

cash said:


> The 10% is taken from historical averages.
> 
> Look at this spreadsheet: www.libra-investments.com/re01.htm Click the 6th bullet point that begins with "An Excel spreadsheet (right click to save) of annual returns, both nominal and inflation adjusted, has been updated to include 2011 returns for many investable asset classes."
> 
> ...


i was 21 in 1970 and i am the first wave of boomers ... the period from 1970 to 2008 was, with some exceptions a period of strong expansion and growth and the beginning of the technological revolution .... i don't think that prospects for the next 48 years are quite as bright ... though perhaps india and china are where we will pin our hopes for future growth


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## lefilter (Mar 4, 2011)

Nicely done spreadsheet. Yes historical averages give a pretty good picture but the conclusions might be skewed depending on the time frame you chose. Looking at your 10.1 % for all cnd bonds, why would anybody invest in anything else than bonds? Lets just pile in bonds and be done with it! This figure is high because of the 80's crazy int. rates. If you take a 20 years window, this figure goes to 7.7 %, wich is still on the high side considering a 10y fed. bond yields around 2 % right now. Of course, in 2012 we need to take on more risk and go into stocks in order to reach that 10% goal.

So the investor has a large chunk of his portfolio with an estimate of 7.7% (bonds). This means the rest must do more than 10% (around 12%) to get an overall performance of 10%. Looking at your data, for the last 20 years, TSX is at 9% SP500 at 7%, emerging at 8% and EAFE at 4%. So, for the 2012 investor to reach that 10% average until retirement, he has to be pretty darn good at generating alpha or hope the next 20 years are going to be significantly brighter and happier than the last 20. Its possible of course, and i have no doubt some people here are doing it, but its far far away from the slam dunk too often advertised. Lots of pension funds are now realising they made that mistake.


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## cash (Mar 5, 2011)

I wasn't giving any kind of prediction going forward, merely explaining where the 10% number came from.


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## mastercool (Apr 2, 2012)

*overblown*

it seems this type of roi (or even 8% ROI compounded continuously) is really overblown and thrown around a lot. A lot of these public-based indexes may have that kind of ROI over a long period of time, but most of the records indicate the year it first came out having something like a 70+% return, then years and years of underperformance. That to me doesn't mean anything.

I just finished reading the book "From Ramen to Riches" and it threw this 8% ROI number around a lot and explained a lot of really hypothetical scenarios. The author really tried to make it sound like a long term investment in a public index is a worthwhile investment so I was just wondering what you guys thought.


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## doctrine (Sep 30, 2011)

5% dividend yield + 5% dividend growth = 10% total return


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## andrewf (Mar 1, 2010)

What 5% div yield?


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## GoldStone (Mar 6, 2011)

Take a look at FPX Indexes. These are investable, low-cost, passive portfolios with a 15+ years record.

*FPX Growth*

15 yrs: 5.57%
10 yrs: 4.36%

*FPX Balanced*

15 yrs: 6.16%
10 yrs: 5.25%

Portfolio details:
http://www.croftgroup.com/articles/benchmark.htm#The Components

Return calculator:
http://www.croftgroup.com/indexes/calculator.asp

15 yrs returns are from 31/12/1996 to 31/12/2011
10 yrs returns are from 31/12/2001 to 31/12/2011


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## Sampson (Apr 3, 2009)

doctrine said:


> 5% dividend yield + 5% dividend growth = 10% total return


Don't you mean 100% dividend growth? 5% growth would only result in 5.25% yield.


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## doctrine (Sep 30, 2011)

No, I mean of course over time the capital gains will accompany it. A dividend increase will often precipitate an increase in stock price. I would guess this is true 80% of the time for the stocks I own. On average, my portfolio returns a 5% dividend and a 5% increase in capital gains for a total gain of 10% a year. The capital gains portion is of course market dependent but if you diversify it tends to even out. 

Sometimes the stock price goes up 10% when there is a 5% dividend increase, and sometimes the dividend increases 10% and then the stock increases 15%. Other times, the dividend increases and the stock price does not move. It evens out.


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## Sampson (Apr 3, 2009)

then you are doing extremely well my friend. As the previous posts show, you are handily beating returns of at least 60% of the investors out there.


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