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I've invested in stocks as a hobby for the last ten years, so I'm no expert on this. But if you have contributed about $7,000 over the past ten years (like putting in $200 here and there) and your portfolio is currently worth $17,000 is that considered a good rate of return?

How about if you have limited types of securities--about 5 or 6 companies--at any given time? Is that considered being good at stock-picking or just lucky?

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  • A common benchmark for investors is the S&P 500 index, which is up ~80% over the last 10 years. Based only on your limited information, you've had a 143% increase, which handily beats the index. So yes, it's a good rate of return, but I'd also say that you got lucky. It's probably not something you'll be able to sustain over the next few decades.
    – jlewkovich
    Commented Sep 4, 2014 at 23:50
  • @JL - so the OP got lucky over 10 years? Over the past 10 years we have had a booming market followed by a crashing market followed by booming markets again - I think getting good returns over a 10 year period covering these types of markets takes more than luck !!!
    – Victor
    Commented Sep 5, 2014 at 3:16
  • @Victor: Actually, holding through that period, if you were reasonably diversified, did pretty well. Buying into the downturn, if you could afford to do it, did better. I came out of it basically having lost only two years of growth, and I'm not doing anything sophisticated... but I am well-diversified and I rebalanced through it. With a small number of stocks, flexibility is lower and possible error is higher.
    – keshlam
    Commented Sep 5, 2014 at 3:57
  • @keshlam - "Buying into the downturn" - and how do you know where and when the downturn is to stop? That is the riskiest thing to do. You should be buying out of the downturn, where risk is at the lowest! Using some simple indicators like the 200 day MA or the 50 day MA of the 100 day ROC (Rate of Change) indicator - this would have been mid 2009 for the S&P500.
    – Victor
    Commented Sep 5, 2014 at 4:14
  • @victor: OK, I should have said buying through the downturn. Trying to time the market is a losing game. Your moving average approach is better, but simply doing dollar-cost-averaging on a fixed schedule does work. If you want to stop buying when you think the market is overheated and buy more when you think it's under, great, but trying to do better than that may not be worth the added effort.
    – keshlam
    Commented Sep 5, 2014 at 14:32

3 Answers 3

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It's important to realize that any portfolio, if sufficiently diversified should track overall GDP growth, and anything growing via a percentage per annum is going to double eventually. (A good corner-of-napkin estimate is 70/the percentage = years to double). Just looking at your numbers, if you initially put in the full $7000, an increase to $17000 after 10 years represents a return of ~9.3% per annum (to check my math $7000*1.09279^10 ≈ $17000). Since you've been putting in the $7000 over 10 years the return is going to be a bit more than that, but it's not possible to calculate based on the information given.

A return of 9.3% is not bad (some rules of thumb: inflation is about 2-4% so if you are making less than that you're losing money, and 6-10% per annum is generally what you should expect if your portfolio is tracking the market)... I wouldn't consider that rate of return to be particularly amazing, but it's not bad either, as you've done better than you would have if you had invested in an ETF tracking the market. The stock market being what it is, you can't rule out the possibility that you got lucky with your stock picks. If your portfolio was low-risk, a return of 9%ish could be considered amazing, but given that it's about 5-6 different stocks what I'd consider amazing would be a return of 15%+ (to give you something to shoot for!) Either way, for your amount of savings you're probably better off going with a mutual fund or an ETF. The return might be slightly lower, but the risk profile is also lower than you picking your stocks, since the fund/ETF will be more diversified. (and it's less work!)

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There isn't really enough information here to go on. Without knowing when you invested that money we can't find your rate of return at all, and it's important to measure your rate against risk. If you take on significantly more risk than the overall market but only just barely outperform it, you probably got a lousy rate of return. If you underperform the market but your risk is significantly lower then you might have gotten a very good rate of return. A savings account earning a guaranteed 4% might be a better return than gambling on the roulette wheel and making 15%.

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  • What do you mean by "take on significantly more risk"? How does an investor take on risk?
    – MNRC
    Commented Sep 4, 2014 at 20:00
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    An investor takes on risk by investing in something risky. Stocks in general are pretty risky because they fluctuate where a diversified mutual fund is less risky and cash being the safest.
    – Zoop
    Commented Sep 4, 2014 at 20:23
  • @MNRC - there are simple ways to minimise and manage your risk in any investment.
    – Victor
    Commented Sep 5, 2014 at 5:29
  • @MNRC - there are a bunch of different ways of measuring risk. I recommend using something like futureadvisor.com which gives a fully free assessment of your portfolio and explains where any excess risk is coming from.
    – David Rice
    Commented Sep 5, 2014 at 15:01
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Historically, the market's average rate of return has been about 8%. (Serakfalcon's "6% to 10%" is essentially the same number.) You should be able to get into that range for long-term investments with minimal risk.

"5 or 6 companies", unless you know a heck of a lot about those companies, is fairly high risk. If any one of those runs into trouble, a considerable amount of your net investment is riding on it. Of course if any of them invents the Next Big Thing you could hit it big; that's the tradeoff.

Diversification isn't sexy, but it buffers you from single-company disasters, and if you diversify across kinds of investment that buffers you from single-sector disasters. Index funds aren't sexy, but they're a low-cost way to diversify, especially if you go with a mix of funds in different categories (large cap, small cap, bond, international, real estate) or a fund which has that mix built into it such as a target date fund.

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