How to Invest for an 8% Return
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Probably one of the biggest “Critiques” of my videos is that I’ll often assume and base my calculations off of getting an 8% return, which many find unrealistic – so here’s what I base my calculations from. Enjoy! Add me on Snapchat/Instagram: GPStephan
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One very important distinction here is that there is no such thing as a guaranteed 8% return. While we can base our returns off long term historical trends and use that as an educated guide, there will never be a bulletproof 8% return without any risk whatsoever. The other important distinction is that when we assume an 8% return, we never will see a consistent 8% return. I take the historic AVERAGE, meaning over a period of 30+ years. Short term, it’ll be much more difficult to calculate. Not financial advice, for entertainment purposes only – do your own research 😉
The first is the SP500. If we look at the historic averages of the SP500, it’s returned close to 8% adjusted for inflation with the dividends re-invested. Again, nothing is guaranteed – and it’s possible we’ll see lower or higher returns in the future, but I believe it’s reasonable to assume about an 8% return given the last 100+ years of data.
The second way you can get 8% returns, much like the above example, is individual stocks. This one is potentially MUCH risker, but with MUCH higher reward. I’d assume it to be much less passive than buying an index because you’re specifically researching a company and then monitoring that company to make sure they’re doing as well as you expected, and then maybe adjusting your position as necessary. It’s also much riskier because you have fewer eggs in your basket – unlike the SP500 where you basically have a small piece of 500 companies, when investing in individual stocks, you might only have a few – this has the potential to dramatically increase or decrease your returns.
The third way, and everyone will know as my favorite way to get an 8% return is through real estate investing. I have a trillion videos on the subject of how to make money in real estate, but your real estate returns are typically broken up into three categories: Cash return, Equity by paying down your loan, and Appreciation. Generally, getting a 8-10% return in real estate is fairly common – in fact, some people end up getting insanely higher returns depending on the area. Not only are you receiving rent, but you’re also paying down the loan – building equity, and owning an appreciating asset. Win win win!
The fourth way you can make returns of 8% or higher is through peer-to-peer lending websites like LendingClub or Prosper. This isn’t something I’ve personally done, but I know many people who have had a very good experience doing this and have averaged about 7-10%. These websites allow you to “loan” people money at set interest rates, for as low as $25 each. So far this has been fairly successful and seems to work great for people who loan money to those consolidating debt with a high income and decent credit score, but we’ve yet to see how sites like this will do during the next recession. I’m sure the returns will lower in economic turmoil, but regardless, it still seems like a fairly decent option for those willing to try it.
But the key to doing this is to always have a long term outlook. From the way I see it, the short term is too difficult to predict – but long term, we’ve got a great baseline from many decades of research behind us. And also, the longer you can hold, the lower the risk – no one knows what will be in the future, but we can certainly use the past as a guide – and this, is exactly how I figure my 8% returns. Not financial advice (Again) 😉
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