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What Stock Market Returns to Expect

Stock market returns rely solely on what types of investments you choose.  The riskier the investments, the more you can gain or lose in any year.  However, if you are investing for a long time horizon, then more risk will almost surely mean higher returns.  Also note that this assumes you invest in a diversified portfolio (i.e. not just one stock).  For example, if you invest in Company A, which is developing a new technology that hasn't yet caught on, you could make 1000%s or you could easily lose it all in just one year.  If you held this stock for 10 years, you could end up losing money all ten years.  On the other hand, if you bought Company A and 20 other companies like it, you could still lose or make quite a bit of money the first year, but you would not make 1000%s or lose it all.  And in the long run, these stocks together should make you money.

There is no hard and fast rule as to exactly what to expect when you invest.  And because the amount of risk you take in your investments can also not be measured accurately, it is even harder to know what type of returns to expect.

Here are some rough guidelines as to what type of returns to expect.  Remember, the opportunity to make more money also means the opportunity to lose more money.

Risk Level Investment Types 1 Short Term Expected Return 2 Long Term Expected Return 3 Comments
Low Savings Account, Certificates of Deposit 0.5% to 6.0% 2.0% to 5.0%  
Medium Bonds, Large Established Stocks -10% to 10% 5% to 9%  
High Small Stocks, Tech Stocks -15% to 15% 10% to 12%  
Very High Emerging Stocks, Speculative Stocks -75% to 75% 10% to 20%  

1 Assumes a diversified portfolio of similar investment types or a mutual fund of that investment type.

2 Assumes an investment period of approximately 1 year. These expected returns are based on historical results and actual results could vary by even more.

3 Assumes an investment period of at least 10 years. Any given year could fluctuate dramatically.


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