How Much Should You Expect To Earn From Investing?

Recently, there was a report about a Ponzi scheme operator losing about US$400 million of investors’ money. The operator had promised a return of 20% a month to its investors. The bait was successful in attracting hundreds of millions of dollars into the scheme.

When I read the report, I was very surprised to learn that so many people could believe that an investment scheme could promise a monthly return of 20%. Even Warren Buffett, arguably the best investor of our time, could only manage to grow his wealth at about 20% PER YEAR over the past few decades.

It made me realise that many people are still unsure of what is a reasonable return they should be expecting from their investments. Here’s a chart to illustrate our expectations:

Source: Author’s calculation

The chart shows the reasonable returns we can expect from some of the more common investment options there are in the market. A fixed deposit would give us a return of around 0.3%. If we desire something more, we can turn to the Singapore Savings Bonds, which could give us a return of just over 2% annually. There is also the Singapore government 30-year bond, which yields around 2.4%.

So, we have so far covered fixed deposits, and government-backed bonds. One other important investment option is the stock market. Over the past 15 years, the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, has generated an annual return of around 7.2%.

If we look at all these investment opportunities, none of them have historically produced anything near the 20% monthly return that the Ponzi operator claimed it could.

What I have just done is to show a reasonable range of returns investors could expect from various types of financial assets. I hope this can help more people spot a potentially fraudulent scheme.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.