I was once talking with someone who had accumulated a sizable portfolio. He stated that he was tired of just getting the average return of the stock market and wanted to look for opportunities that could yield higher such as 18%.
Nothing wrong with wanting to reap higher returns but what is a reasonable expectation? According to Ibbotson, compound annual historical returns from 1926 to 2017 are: small stocks 12.1%, large stocks 10.2%, government bonds 5.5%, Treasury bills 3.4% while inflation has averaged 2.9%. Some years you may see greater returns and others years smaller. But over a long time horizon, the returns I have listed appear to provide reasonable expectation. Keep in mind, an asset that has a higher expected return also carries greater risk or volatility. So be careful when chasing higher returns.
What about the 18% returns? The individual further stated that he knew a friend earning these returns from owning real estate involved with cell tower leases. I don’t doubt the friend earned these returns but the time frame for these returns was not provided. It’s ok to designate a small portion of your portfolio to find the next Amazon or Apple or the lucrative cell tower leases, just realize the associated risks while keeping reasonable expectations for the bulk of your portfolio.
