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Is it possible to have a 30% return on stock investments?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 335.4 million views in recent years.

In the answers below I focused on the following topics and issues:

  • Is it possible to have a 30% return on stock investments?
  • How did the Delta variant affect the stock market, and will the new one have a similar impact?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

Source for all answers – Adam Fayed’s Quora page.

Is it possible to have a 30% return on stock investments?

Depends on your time horizon. The stock markets in general have done 7%-8% per year, with the major US ones doing 10% per year.

This is adjusted for dividend reinvestment and isn’t a constant reality of course, as the chart below shows:

main qimg 27bbecdd7f1136f2711476f83322c5d3 lq

The calculator below shows the S&P500’s return since 1945 has been:

27467.664% (total return)

Which is 7.674% annual per year returns without dividends being invested

If dividends were reinvested, the returns would be 11.255% per year and 331208.236% respectively.

Adjusted for inflation, the results are:

3.892% per year annual returns after inflation

Or 7.347% per year, adjusted for inflation and dividend reinvestment.

Those stats should tell you that

  1. The overall stock market tends to go up over time, even if some big names go to zero, like Lehman Brothers
  2. Dividends are quite important for total stock market returns. Despite this, people are obsessed with capital values. They say things like the FTSE100 has been stagnant for 20 years when it hasn’t been, adjusted for dividends.
main qimg 04856b6de9fa36aff826e825d0949fbf lq

3. The stock market does not do 30% per year long-term, even though some years are 30%, such as 2019.

4. Getting 30% over a three-year time horizon is fairly average, if you reinvest dividends

5. Some time periods are much better than others in the markets. There are certain time periods where you will get 30% every two years, like in the 1982–2000 period, when stocks averaged about 16% per year growth.

There are other periods where markets are stagnant for a decade or longer. Many people lose faith during these moments, when they shouldn’t – it is cheap valuations for longer.

6. Markets don’t fall that often on a yearly basis. When they fall, they can fall big.

They inevitably recover. Yet people who are new to investing worry about periods like that.

How has the spread of the delta variant of covid-19 affected the stock market?

I wouldn’t over-analyze this question. The market did well, in general, during delta, and indeed since Covid itself – markets have soared even more after this chart was made:

main qimg bdf0646a4eb533e1f860043fe43bcccf lq

Of course, every time the markets fell, the Delta variant was blamed. The same thing is happening with this new variant.

On Friday, the news reported that markets sink on news of the new covid variant. Yesterday, the news was markets rise despite fears of a new variant.

Today the news is markets sink again, just slightly this time, on the news of the new variant!

In October many parts of the news media said markets would fall if there was a second lockdown in Europe and there was a disputed US election.

Both things happened but stock markets soared, even the day after the 2020 election.

If markets fell, the media would have reported that “markets slump on news of a disputed US election and second European lockdown”.

There have been lockdowns since then, with many countries doing it three or four times, and the markets have been fine.

What is true is that the market is dominated by people – people are emotional. Even institutional investors can be.

Sometimes people over-react, as they did during the early days of Covid and on Friday as well.

On other occasions, the market under-reacts and is complacent. The point is though, there are so many pieces of news and data, and interpretations of that data, that nobody can make predictions.

Let me give you one example related to the new Covid variant. Some people are speculating, perhaps rightly, that the new variant will result in more QE, lower inflation, and interest rates staying lower for longer.

That should mean that the usual “Santa rally” around Christmas is bigger this time, once the news comes and goes.

Others will have more pessimistic interpretations, and if so, try to move into technology and “stay at home” stocks.

There is always imperfect data and information. That has always been the case, not just during Covid.

That is why trying to find the perfect time to enter, and exit, the market is so difficult, and even professional investors tend to stay the course.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 735.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.



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