What Is A Good Return On Investment (ROI)? | Bankrate (2024)

Before you invest your money, you’re likely wondering how much you’re going to earn. This is known as the rate of return or return on investment. The rate of return is expressed as a percentage of the total amount you invested. If you invest $1,000 and get back your original investment plus an additional $100 in interest, you’ve earned a 10 percent return.

However, numbers don’t always tell the full story. You’ll also need to think about how long you plan to keep the money invested, how your investment options have performed historically and how inflation will impact your bottom line.

Key return on investment statistics

When you’re trying to get the best return on investment, you’ll likely start combing through loads of data. A good place to start is looking at the past decade of returns on some of the most common investments:

  • Average annual return on stocks: 12.8 percent
  • Average annual return on international stocks: 4.9 percent
  • Average annual return on bonds: 1.4 percent
  • Average annual return on gold: 3.4 percent
  • Average annual return on real estate: 4.8 percent
  • Average annual return on 1-year CDs: 0.42 percent

CD rate data is from internal Bankrate averages.

What is a good return on investment?

There is no simple answer to define what a good return on investment is. You’ll need some additional context on the risk you’re accepting with the investment and the amount of time you’ll need to reap the reward.

Let’s say you need a ride to the airport. It’s 30 minutes away, and you’re running a bit behind schedule. A friend promises to get you there in 15 minutes, but the ride involves driving 100 mph, running red lights, darting in and out of traffic, all the while fearing for your life. Was that “return” of 15 minutes of your time really worth the white-knuckle ride that came with the risks of an accident and injury? Probably not.

Now, think about a real financial example: a 2 percent return. This may not sound impressive, but let’s say you earned that 2 percent in a federally insured, high-yield savings account. In that case, it’s a very good return since you didn’t have to accept any risk whatsoever. If that 2 percent figure came after you spent the past year following Reddit forums to chase the latest meme stock, your return doesn’t look so good. You had to accept loads of risk while likely losing lots of sleep during each large valuation swing.

Long-term vs. short-term investments

When it comes to investing, the adage “time is money” rings true: The longer you leave your money invested, the more you should generally expect to earn. Long-term investments — ideal for retirement and building wealth — offer higher returns but you’ll need to deal with their ups and downs, while short-term investments — best for immediate needs like an emergency fund or a down payment for a house — are typically safer with a lower average rate of return.

Long-term investment examples

  • Stocks: From recent IPOs to blue chip stocks, investing in stocks gives you the chance to reap the rewards of a company’s growth. Keep in mind that you’ll also have to endure the company’s losses during tough times and bad quarterly earnings reports.
  • Real estate: Whether you’re buying a house to live in or buying another property to rent out, real estate can be an attractive long-term investment. Housing prices tend to rise over time, though they’re not immune from boom-bust cycles.
  • Target-date funds: Appropriately named, these funds invest in a mix of asset classes (stocks, bonds and other opportunities) with a specified end date and automatically adjust your risk profile as the target date nears. These are especially well-suited for the long-term goal of retirement.

Short-term investment examples

  • Savings accounts: Putting money in a savings account can also pay off with some extra interest. You won’t make much since you have the ability to withdraw the funds at any time and enjoy the protection of FDIC insurance, but some online banks will pay above-average rates.
  • Certificates of deposit: Traditional CDs are among the lowest-risk investments. By agreeing to keep your money locked away for a set period of time (6 months or 18 months, for example), a bank or credit union will pay you a slightly higher interest rate than you could get on a savings account.
  • T-bills: The U.S. Treasury Department issues bonds to help finance the government’s spending needs, and T-bills have the shortest maturity timelines: as little as four weeks and as long as one year.

What if your investment is below its average?

If your investments are falling short of expectations, follow one essential rule: Don’t panic. One year, the stock market might be up 14 percent. Two years later, it might be down more than 35 percent (as it was in 2008). Earning the average means taking the good with the bad, leaving your money invested and reinvesting all distributions — even when the index is underperforming.

Stocks, real estate and other higher-risk investments can generate negative returns over short time frames. Over longer periods of time, though, these investments can make up lost ground and generate the higher return on investment that attracted your attention in the first place.

Understanding inflation’s impact on your return

You also need to pay close attention to the rate of inflation to get a true picture of what your investment can actually purchase. If you earned a 5 percent return on an investment during a time when inflation increased 5 percent, the after-inflation, or real return on investment, is zero.

Cash investments often trail, or at best, keep pace with inflation. If you keep all your money in CDs and a savings account for decades, the amount of money in your account will increase, but the buying power of that money will likely shrink.

So, for long-term investment goals like retirement, a heavy allocation toward stocks — particularly in the earlier part of your professional career — is a time-tested way to outpace inflation and create wealth. And in times when inflation is running even hotter, it’s important to understand the best investments to hedge against that deflating purchasing power.

Bottom line

“What is a good ROI?” does not have a one-size-fits-all answer. To accurately understand how your return stacks up, you need to have a holistic picture of the bumps and risks along the way. And remember that when you’re talking about investing, it means you’re looking at the big picture and all of the long-term possibilities in front of you — not trading based on the latest news and movements of the market. By diversifying your portfolio across various assets and holding those assets during distressed periods, you’ll be able to optimize your return on investment based on the risks you’re willing to take.

— Bankrate’s Rachel Christian contributed to an update of this story.

What Is A Good Return On Investment (ROI)? | Bankrate (2024)

FAQs

What Is A Good Return On Investment (ROI)? | Bankrate? ›

Key return on investment statistics

What is a good ROI on an investment? ›

General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.

What is the average return on investment ROI? ›

Key Takeaways. Return on investment (ROI) is an approximate measure of an investment's profitability. ROI is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and finally, multiplying it by 100.

Is 30% ROI good? ›

Is 30% Good ROI? An ROI of 30% can be good, but it can depend on how long your ROI has been at 30% in previous years. A 1-year ROI of 20% compared to 3-years of a 30% ROI can be considered a better investment.

Is 20% a good ROI? ›

What is a good ROI? While the term good is subjective, many professionals consider a good ROI to be 10.5% or greater for investments in stocks. This number is the standard because it's the average return of the S&P 500 , an index that serves as a benchmark of the overall performance of the U.S. stock market.

What is a good rate of return on my investments? ›

A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.

Is a high ROI always good? ›

How to use ROE. The higher a company's ROE percentage, the better. A higher percentage indicates a company is more effective at generating profit from its existing assets. Likewise, a company that sees increases in its ROE over time is likely getting more efficient.

What is a good ROI per month? ›

What Is a Good ROI? According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. The average annual return of the Nifty 50 Index is about 14.2% CAGR since the year 1999.

Is 100% a good ROI? ›

Generally, the higher your ROI is over 100%, the better. If you have an ROI of just 100%, you essentially made your initial money back when accounting for costs.

What is a good ROI over 10 years? ›

The average annual return for the S&P 500, when adjusted for inflation, over the past five, 10 and 20 years is usually somewhere between 7.0% and 10.5%. This means that if your portfolio is returning better than 10.5%, you have a good ROI.

How much money do I need to invest to make $1000 a month? ›

To make $1,000 per month on T-bills, you would need to invest $240,000 at a 5% rate. This is a solid return — and probably one of the safest investments available today. But do you have $240,000 sitting around? That's the hard part.

How much money do I need to invest to make $3,000 a month? ›

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

Is 10% return on investment realistic? ›

Usually the implication is that they can expect, over a long time, a 10% return. Fortunately some ask, with some doubt, "Is a 10% return really reasonable?" It is not. While the average growth or return in the market (e.g., the S&P 500) is about 10%*, investors over time do not see that.

Is a 25% ROI good? ›

A 25% yearly return on investment is generally considered to be a very good return, as it is significantly higher than the average annual return of the stock market over the long-term, which is typically around 7-10%.

Is 2% a good ROI? ›

Now, think about a real financial example: a 2 percent return. This may not sound impressive, but let's say you earned that 2 percent in a federally insured, high-yield savings account. In that case, it's a very good return since you didn't have to accept any risk whatsoever.

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