A good return on investment is generally considered to be around 7% per year.
Understanding a Good ROI
Based on historical market data, a widely accepted benchmark for a "good" return on investment (ROI) is approximately 7% per year. This figure is derived from the average historic return of the S&P 500 index, after adjusting for inflation.
Why 7%?
- Historical Context: The S&P 500 is a stock market index representing the performance of 500 of the largest companies listed on stock exchanges in the United States. Its long-term average return provides a benchmark for market performance.
- Inflation Adjustment: The 7% figure is significant because it is adjusted for inflation. This means it represents the real growth in purchasing power, rather than just nominal growth which can be eroded by rising prices.
Achieving a return around or above this benchmark is often seen as a successful investment strategy, particularly for long-term goals.
