A more realistic expectation on investment returns

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This came through to my inbox this morning:



The example showed how unrealistic it is to expect to get rich quickly by investing or in this case (trading) in the stock market. 

Warren Buffet puts it succinctly:

"The economy, as measured by gross domestic product, can be expected to grow about 3 percent a year in the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent. Stock prices would probably rise about the same and dividend payments will boost total returns to 6 percent to 7 percent a year."

A sound investment strategy takes into account the long-term growth of the real economy, which is why investing in good businesses is a reasonable way to expect gradual and sustainable growth over several years. While it's possible to gamble and profit from market fluctuations through regular trading, this approach is essentially speculative and not true investing.

For most people, the best approach to investing is to wait for a downturn in the economy, when prices are discounted, and invest in ETFs or index funds that track the overall performance of the market. Over time, these investments can grow, providing additional income from dividends. By focusing on long-term growth rather than short-term gains, investors can create a more stable financial future for themselves.


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