20% annual return - realistic?

[arae]

I'm a new investor in stocks and am asking for your opinion on what is a realistic goal for annual returns as a long term investor.

I know this question has a bit of a 'how long is a piece of string' feel about it, but am genuinely interested in other's sharing their personal experience and opinions.

As for my strategy, I plan to have a mostly 'buy and hold' approach and select stocks on a ratio of roughly 75% solid/blue chips and 25% speculators.

My current portfolio is;

MBL
BHP
CBA
NMS
CBH
EMR

At present, I have $20 000 invested and plan to contribute $15000 a year. A 20% profit a year would equate to around $500 000 after 10 years. I am a non resident so wouldn't be paying any tax. For the same reason, dividends can't be included.

Is this at all realistic? Or am I being to hopeful?

 

[stoxclimber]

When you consider the historical return of the market is about 13%ish from memory, it's on the high side.


Not really sure what you're talking about re: divs and tax. I'm sure you're paying tax somewhere..and you get paid dividends even if you're an overseas investor.

 

[yonnie]

I hope you have a good stop loss on the speculators, otherwise you wouldn`t even make 13% a year.
also if you buy your blue chips at the height of the market you might have to wait awhile even to break even.

 

[martinhale]

You will get input that suggests all sorts of returns are achievable - you will rarely hear of the drawdowns that accompany such claims or of the time frames involved.

Over a 10 year period, if you achieve 10% pa on average go and pat yourself on the shoulder. You are a star.

 

[tasmanian]

Its realistic you can make alot more than that.

agree with what veten said if you buy at the height of the market u could be going negative for a couple of years.I personally dont believe in that buy and hold hope for the best theory.sure its been great last 4yrs or so but will it be for the next few??strongly strongly doubt it.

You should really learn to play both sides op the market both long and short and ride whichever way the trend is telling you to go.

last couple of years have been special hope it returns but not looking real positive atm

 

[nizar]

Is a 20% return realistic?
YES

But with a buy and hold strategy, You're making it very hard for yourself.

Jesse Livermore once said something along the lines of: Buy and Hold is the riskiest type of investing. Because if you get it wrong, you lose everything.

 

[nizar]

Over a 10 year period, if you achieve 10% pa on average go and pat yourself on the shoulder. You are a star.

It depends on the drawdowns and volatility IMO.

If you can acheive 10%pa with every year being positive and single digit drawdowns then yes, you are doing well.

 

[Ken]

I think you will find if a share trader is investing with $10,000, percentage wise they will probly make more than an investor with $50,000.

Purely for the reason they will let their profits run longer, and cut their losses shorter.

Just a theory when 10% shows a gain of $1000 and 5% shows a gain of $2500.

You're more inclined to take the 5% gain as $2500 is lot of money.

Not saying $1000 isnt but psychology of share traders is not always thought through.

Rash decisions in both upward and downward markets.

Just a theory I have.

 

[ROE]

I'm a new investor in stocks and am asking for your opinion on what is a realistic goal for annual returns as a long term investor.

I know this question has a bit of a 'how long is a piece of string' feel about it, but am genuinely interested in other's sharing their personal experience and opinions.

As for my strategy, I plan to have a mostly 'buy and hold' approach and select stocks on a ratio of roughly 75% solid/blue chips and 25% speculators.

My current portfolio is;

MBL
BHP
CBA
NMS
CBH
EMR

At present, I have $20 000 invested and plan to contribute $15000 a year. A 20% profit a year would equate to around $500 000 after 10 years. I am a non resident so wouldn't be paying any tax. For the same reason, dividends can't be included.

Is this at all realistic? Or am I being to hopeful?

20% compound a year you can become a billionaire very quickly so in another word no.

and if you can get 20% compound that easy you don't need $$$ you just use other people money ... borrow rate at 8% .. return at 20% you make 13% too easy

in a long run and you are an average investor and buy blue chip expect 8% a year return.

 

[Ken]

I think seriously long term earnings of 20 % per year will require stock rotation.

You will have your core stocks.

Then you will have to suss out some small caps for the short to medium term.

You may also have to hold some 6-12 month stocks in your port folio to get you that extra 4-5%

Risk management.

It has been easy to make 20% the last few years.

But the good times do end.

With the financial instruments out there the market doesn't have to keep rising. If its volatile the fundmanagers with the best analyst always win.

Example

During the correction 1 fund manger made 130%, 1 fund manager lost 100%.

Short selling is being very popular. This will mean more volatilty in years ahead I would have thought.

 

[Trembling Hand]

Please what ever happens come back on August the 29th of 2008 and tell us how it is going. This kind of question pops up all the time. It would be a magnificent story no matter what the out come is.

 

[nizar]

Please what ever happens come back on August the 29th of 2008 and tell us how it is going. This kind of question pops up all the time. It would be a magnificent story no matter what the out come is.

Do you mean 2017?
He did mentioned a longterm outlook and wanted 20%pa.
20% in one year once off hell yes it can be done by just about anybody.

 

[nizar]

I think you will find if a share trader is investing with $10,000, percentage wise they will probly make more than an investor with $50,000.

Purely for the reason they will let their profits run longer, and cut their losses shorter.

Just a theory when 10% shows a gain of $1000 and 5% shows a gain of $2500.

You're more inclined to take the 5% gain as $2500 is lot of money.

Probably not.
Letting profits run and chopping dogs should apply to everybody -- not those with limited capital eg. 10k.

As to 5% profit or 10% profit, its all relative.
$1000 is alot of money to those with 10k.

 

[arae]

Thanks for the replies so far. I should've elaborated a little more on my strategy. By being more inclined to 'buy and hold' I was referring to the blue chips or solid growth stocks eg. BHP, CBA, NMS. Whereas the speculators would be a more play it as you go type scenario and certainly with a stop loss. This strategy seems to have the most logic to me at the moment. Ask me in a year or 5 and my collective wisdom will surely have a different opinion than my current sprouting bud in the stockmarket self.

The stocks I listed are just what I have in my portfolio at present. I will certainly be adding and replacing stocks as I see fit.

As for the prices, I picked all of these up during the recent correction ie.

BHP $34, CBA $52, MBL $63, NMS $0.74, CBH $0.51, EMR $0.17

So not too bad as far as long term for the first 3 and short/medium for the other 3 I think.

 

[arae]

Stoxclimber - If the Stockmarket has historically returned an average of 13% then wouldn't it be reasonable for someone that has put in the time to carefully research and hand pick certain stocks which they see as superior to expect higher than 13% over the long term? Perhaps not as high as 20%, but higher than the average surely? If not, then what's the point of researching and analysing? Likewise Martinhale, if I achieved 10% returns over 10 years how would that be 'pat myself on the back' worthy? When in fact a list of all ASX stocks and a few darts would in all probability produce better returns...

 

[tech/a]

I think you will find if a share trader is investing with $10,000, percentage wise they will probly make more than an investor with $50,000.

Purely for the reason they will let their profits run longer, and cut their losses shorter.

Why would they be any different?
Just because you have 5 x larger capital base doesnt mean you would be reckless.

Just a theory when 10% shows a gain of $1000 and 5% shows a gain of $2500.

You're more inclined to take the 5% gain as $2500 is lot of money.

Not to a trader with a $50000 capital base.

Its all relative.

ARAE.
Of course its possible.

However it aludes most.

 

[Polaris]

Yes it's possible.
Yes it alludes most in the long run.
Patience, persistence, stick to your strategy and refine it as you learn.

On another note, I thought you still pay taxes as a non-resident.. Isn't that what non-resident tax rates are for? 29% or so?

 

[theasxgorilla]

On another note, I thought you still pay taxes as a non-resident.. Isn't that what non-resident tax rates are for? 29% or so?

Income, yes, capital gains, no. But your country of residence will most likely have its own capital gains tax laws which cover gains on overseas assets. So getting around capital gains tax by investing in Aust from abroad isn't a complete no-brainer.

 

[stoxclimber]

Stoxclimber - If the Stockmarket has historically returned an average of 13% then wouldn't it be reasonable for someone that has put in the time to carefully research and hand pick certain stocks which they see as superior to expect higher than 13% over the long term? Perhaps not as high as 20%, but higher than the average surely? If not, then what's the point of researching and analysing? Likewise Martinhale, if I achieved 10% returns over 10 years how would that be 'pat myself on the back' worthy? When in fact a list of all ASX stocks and a few darts would in all probability produce better returns...

Well it obviously depends on the person's knowledge, experience, skills etc, but I agree with you that you should be able to put in enough time and outperform the market...although 20% is definately on the highside of outperformance.

My main point was to say that 10% a year..or beating the bank account etc. might seem like good returns, but you're actually not doing that well. For reference, according to ComSec the All Ords has returned 10.44%p.a. over the last 10 years (excluding dividends..so it's probably up near 15ish...? maybe more, not sure what the div yield has been on index over the last 10 years. Of course, you do get the late 90s bull run and the resources in there)

 

[Polaris]

Income, yes, capital gains, no. But your country of residence will most likely have its own capital gains tax laws which cover gains on overseas assets. So getting around capital gains tax by investing in Aust from abroad isn't a complete no-brainer.

That makes sense. It's why people can invest in Aust shares and live in a non-CGT country to avoid CGT.