Is 10% Return Per Year Considered Good in Investing?

Investing with a 10% annual return can seem impressive, but the question of whether this is considered good depends on several factors including the time horizon, risk profile, and the type of investment. In this article, we will explore these aspects to help you better understand whether a 10% return is a good investment.

Considering the Time Horizon

The timeframe of your investment plays a significant role in determining whether a 10% return is good. Over a relatively short period, such as a year, achieving a 10% return can be seen as good, especially if it’s considered risk-free. However, if your investment period stretches over a decade, a 10% annual return might not be as impressive, particularly if it doesn’t beat the inflation rate.

Subjectivity of the Term "Good"

The term "good" is subjective and varies from individual to individual based on personal financial goals and risk tolerance. It's essential to consider the overall performance in relation to the market and other investment opportunities. A 10% return might be considered good for some investors, especially if it is stable and guaranteed, while others might find it insufficient, especially if they are looking for higher returns.

Evaluating Risk and Stability

One of the crucial factors in evaluating whether a 10% return is good is the investment risk. For instance, a 10% return on passive investments such as US stocks might be relatively high compared to many other investments, making it attractive. Conversely, a 10% return on a property joint venture (JV) might be seen as comparably safer than a high-risk venture like a crypto startup or a staking project with less real-world value.

Similarly, in real estate, a 10% return on an unleveraged deal is often considered good. However, if you have high leverage, a 10% return might not be sufficient to cover the costs and risks involved.

Risk-Adjusted Returns

Another important aspect to consider is the risk-adjusted returns. If you are taking on less risk by investing in stable assets like government bonds, a 10% return can be considered excellent. On the other hand, investments in high-risk assets such as penny stocks or hedge funds might require a much higher return to compensate for the increased risk.

Comprehensive Decision-Making

Ultimately, whether a 10% return is considered good depends on a comprehensive evaluation. It's crucial not to get entangled in the trap of guaranteed returns or highly risky investments. Instead, focus on the following:

Understanding the nature of the investment. Assessing the potential risks and returns. Considering the opportunity cost compared to alternative investments. Matching the investment with your financial objectives and risk tolerance. Doing thorough research and being well-informed about the investment.

A Final Word

While a 10% annual return on your investment might seem satisfactory, it's essential to evaluate it against your personal financial goals, risk tolerance, and the alternatives available in the market. Remember, investing is a journey, and understanding the variables can guide you to making more informed and strategic decisions.