A good return on investment is generally considered to be about 7% per year, based on the average historic return of the S&P 500 index, and adjusting for inflation.
In most cases, the expected return of an investment should be greater than the RRR for an investment to be considered attractive. An expected return lower than the RRR would be too risky or unprofitable.
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.
So in a nutshell, my opinion is that you would be fortunate to average around 7-8% rate of return over a long-term basis. There will be periods in which you get a 20% rate of return. These are the great times. But there will also be times in which you are getting a -15% rate of return.
Variable Rate of Return: Financial advisors often project an average rate of return for 401(k) plans between 5 to 8% over 20 to 30 years. However, this does not guarantee such returns due to market volatility and other factors.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
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.
Generally speaking, these accounts, on average, can achieve annual returns of between 7% and 10%, depending on their underlying investments.
The average yearly return of the S&P 500 is 10.569% over the last 100 years, as of the end of December 2024. This assumes dividends are reinvested. Dividends account for about 40% of the total gain over this period. Adjusted for inflation, the 100-year average stock market return (including dividends) is 7.405%.
Interpreting the average rate of return
The higher the value, the better it is; the higher the value of the average rate of return, the greater the return on the investment. When deciding whether to make an investment or not, managers will choose the investment with the highest value of the average rate of return.
Investment duration: The time horizon of an investment plays a significant role in determining what qualifies as a good ROI. Longer-term investments typically require higher ROIs to justify tying up capital for an extended period. Shorter-term investments may offer lower ROIs but provide liquidity and flexibility.
Well, as per the calculations above, 8% before inflation is realistic if you are a US investor. But not if you are a Swiss investor. Let's sum it up this way: When you look at your actual portfolio performance as the years go by (=not inflation-adjusted), then 6.6%-8.4% is a realistic rate of return.
The simple version says the Roth account needs to have been funded for five years before you withdraw any earnings—even after you've reached age 59½—or you could owe taxes. In addition, nonqualified withdrawals before that age could also trigger a 10% penalty.
Average annual 401(k) return: 9.7%
Historically, the average annual return for a Roth IRA or any other type of account invested heavily in stocks can range from 7% to 10%. That estimated return assumes a diversified portfolio over a long-term investment horizon, similar to the stock market's historical performance.
Invest in Dividend Stocks
Last but certainly not least, a stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income. However, at an example 4% dividend yield, you would need a portfolio worth $300,000, which is a substantial upfront investment.
Having said that, you can expect a balanced portfolio to deliver around 5% annually in retirement, whereas more aggressive portfolios may offer higher returns but at the cost of increased risk. Make sure to consider all of these factors to create a retirement portfolio that provides both growth and financial security.
Can You Live on 3000 a Month? Whether $3000 a month is good for you depends on the number of family members you have and the quality of living you want to sustain. If you're single and don't have a family to take care of, $3000 is enough to get you through the month comfortably.
Fixed Deposits (FDs): Safe but lower returns (7% return needs an 86 lakh investment for 50K monthly). Dividend Income: Invest in dividend-paying stocks (average 7% yield needs an 85 lakh investment for 50K monthly).
Bottom Line. If you can invest $200 every month and achieve a 10% annual return, in 20 years you'll have more than $150,000 and, after another 20 years, more than $1.2 million.