How to Earn 12% on Your Investments

Keep your investing perspective! Having trouble viewing images? Click here. November 1, 2011 How to Earn 12% on Your Investments The Tip: Keep your investing perspective! Your goal is for your entire portfolio to earn a 12% average annual return over the long term. If you follow Dave's advice, you know that consistent investing over time in good growth-stock mutual funds is the most effective way to build wealth in the stock market. This kind of long-term investing maximizes growth—averaging 12% per year based on the history of the S&P 500. Even with that long-range view, after an extended season of volatility in the stock market, it's understandable that you might ask, "How are my investments going to make 12% this year?" Your investments may not make 12% this year—and here's why that's okay. The Key Investing Term When Dave talks about your investments' growth, the most important word to notice is "average." Earning a 12% average annual return doesn't mean you earn 12% each year. Your returns could actually swing from negative numbers to more than 100%. But over time, those peaks and valleys will level out into a steady incline. A long-range chart of the S&P 500 index illustrates this. There are lots of dips and spikes in the 58-year history of the S&P, but the overall trend is steady growth—just what you want for your investments! Working as a Team Another important point is that the goal is for your entire portfolio of funds to average 12%—not each individual fund. That's why Dave recommends you divide your portfolio into four types of mutual funds—growth; growth and income; aggressive growth; and international. These funds work together with each one doing the heavy lifting in different market conditions. Growth funds focus on mid-size companies that are more established and considered less risky. They don't usually follow huge market swings but still provide strong return possibilities. Growth and income funds invest in big-name companies—some you've heard of and some you haven't. These are stable, slow-moving funds that give your portfolio a level of stability in down markets and steady growth in strong markets. Aggressive growth funds invest in the up-and-comers of the business world. Volatile markets like we've experienced the last few years can be hard on these smaller companies, but their potential for great returns makes them worth holding on to. International funds allow you to invest in household names that aren't based in America. Nestlé, Toyota and L'Oréal are some of the companies you might recognize. Putting It All Together With this perspective about your investments' performance, you can relax a little about reaching that 12%. If you've selected mutual funds in these categories with at least a five-year history of above-average returns, you've got a portfolio that will build wealth over the long-term. If you're unsure about the quality of your funds, or if you're ready to build your portfolio, consult an experienced professional with the heart of a teacher. Dave's investing Endorsed Local Providers (ELPs) are experts who will give you the same great advice Dave would. Contact your ELP today! Share this:

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