General Question

eden2eve's avatar

Is there a relatively safe way to have a 10% return on invested money in this economy?

Asked by eden2eve (3693 points ) April 18th, 2010

Supposing one had $300,000. to invest, would it be possible to gain 10% per year on your capitol without undue risks? What do you consider the safest investments in the current economy.

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34 Answers

malevolentbutticklish's avatar

@eden2eve: I suggest an investment in pine-trees. They take about 45 years to mature but the return is pretty close to 10% over the life of the investment and they are relatively safe. You can lose out to a storm, pests, government problems, etc over such a long investment which is why I would suggest having two plots. Even if you lose some wood you still have the increase in land value. You also need to develop a good relationship with a forester to show you the ropes, mark trees for thinning, etc.

Rarebear's avatar

Paying off your consumer debt such as credit cards and car loans.

malevolentbutticklish's avatar

@Rarebear: Most people with 300K to invest have already done that a long time ago.

rebbel's avatar

Give threehundred people around you each a thousand dollars.
Probably you end up with zero dollars then, but for sure you’‘ll get a great feeling and maybe in the future something in return.

malevolentbutticklish's avatar

@stranger_in_a_strange_land: gold will not pay 10% long term (unless inflation stays high forever in which case 10% is too conservative a goal)

Rarebear's avatar

@malevolentbutticklish You’d be surprised.

malevolentbutticklish's avatar

@Rarebear: Even if they have 20K in consumer debt that still leaves them with 280K to invest.

stranger_in_a_strange_land's avatar

Gold relative to the US Dollar has gone up over 400% in the last 15 years. It will continue to rise at that rate as long as the government continues to play this Ponzi scheme with the national debt. Gold is more of a way of preserving wealth against inflation though. The actual purchasing power of an ounce of gold has remained stable for about the last 50 years.

malevolentbutticklish's avatar

@stranger_in_a_strange_land: 400% in the last 15 years is less than 10% per year AND gold is currently having a run

john65pennington's avatar

Wife and i have Money Market accounts that gave us around 15% on each one.

Don’t be alarmed, that was in the 80s and boy did our money make money!

Nothing like this today i am sorry to say.

gailcalled's avatar

My money market at Vanguard is paying today 0.014%.

If you live in MA, PA, CA, NYS and several other large states, you can buy a Vanguard Long Term Triple-Tax-Free Muni Bond Fund. The NYS one is paying 3.24% now, I think (but that is not taxable). Vanguard.com VNYTX

Buy a gold chain at a retail store. Then try to resell it. Surprise!

YARNLADY's avatar

There is no ‘relatively safe’ investment that will pay the kind of return you want. To get that high of a return, you must accept a large risk. Look at the tutorials on the Motely Fool. We use E Trade

Rarebear's avatar

@malevolentbutticklish Right. But people underestimate the importance of paying off consumer debt. I’ve talked to people who are worried about a 10% return investment on their stocks, and they’re running a credit card debt of 18%. Paying off the credit card is more or less the same as making 18%.

But if the OP wants a risk-free 10% investment there simply are none. The safest investment is T-bills and they’re not paying anything right now.

eden2eve's avatar

Thanks all for your good answers. I wish they were more encouraging, but what can you do?

plethora's avatar

@gailcalled A bond fund, munis, treasuries, corporate is simply a toilet with the lid still down. The moment interest rates start to tick up (and they will) the value of those bond funds will hit the crapper before you can draw a breath. You won’t have time to get out. Their yield will then be higher, but the value of your account will be half what it was.

plethora's avatar

@eden2eve Yes, you can invest safely with an expectation of earning 10% per year. However, it is not matter of WHAT you invest in (there is no magic bullet). Is more a matter of how you allocate among a number of different investments with low correlation factors to each other and then how you go about protecting against, or limiting losses. Yes, I’m in the business and this is a short description of how one should go about doing that. My solution is find someone who advocates this position and who has no bias for or against any kind of product, and trust him or her to do what they do best.

eden2eve's avatar

Thank you very much @plethora. I will remember this advice.

Rangie's avatar

@plethora what about lifetime income annuities?

susanc's avatar

@Rangie: I’ll quote from a piece of advice from Jane Bryant Quinn in the floppy magazine I/we get every month or so from the AARP – and I believe we’re talking about the same thing:
_”... an immediate annuity. You take a sum of money and use it to buy an income for life. Your state of health doesn’t matter. the fixed payments are based entirely on your age and the type of benefit you want (for cost comparisons, see www.immediateannuities.com). But fixed payments will be whittled away by inflation, so don’t buy an annuity too early. Buy in your late 70’s and early 80s, when they won’t have to last so long.
Satay away from the fancy, tax-deferred annuities that make big promises about future income benefits. They’re too complicated to dissect here, so I’ll say only that the cost is much higher than you think and the odds are good that they won’t perform as you expect. My personal rule is, “if it’s complicated, forget it.” Deferred annuities with income fit that bill.“_
@plethora, is this the same thing that @Rangie‘s talking about?

plethora's avatar

We need to remember that Jane Bryant Quinn is not in the investment business. She is in the business of sellng her column. She is subject to no scrutiny by any regulatory authority and can literally say anything she wants to say….for the simple reason it is a given that no one should take any action without checking with an investment professional, and she probably covers herself (or she should) with something in small print that says that.

As I said above, there is no silver bullet. Different assets and asset classes should be used, which have negative correlation. That means when one goes up the other goes down and vice versa. Some type of annuity is often useful when trying to lock in an income stream. However, in my experience it is almost never an immediate annuity (SPIA…single premium income annuity). They are usually the worst solution unless the person is at least 75. So if you are 65 or 60, what do you do. Well, if you are giving consideration to annuities (as a part, not all) then you would do well to review those “fancy, tax-deferred annities that make big promises about future income benefits.” She doesn’t specify whether she is talking about variable annuities or fixed annuities, which are two different animals. So at this point, her advice is pretty useless.

You have to look at how the person who is giving the advice gets paid. Jane is a columnist, She doesnt have to be right. She simply has to write something that will sell her column.

stranger_in_a_strange_land's avatar

@gailcalled Don’t buy gold chain or any kind of worked gold. Buy bullion in 10 ounce Credit Suisse bars. Universally recognised and as good as cash. The dealer I trade with charges only 1% over the daily fix.

malevolentbutticklish's avatar

@stranger_in_a_strange_land: There is a reason to have gold in smaller quantities such as the Krugerrand. If you ever wanted to purchase anything directly with gold 10oz increments is useless for most items.

plethora's avatar

@malevolentbutticklish Do you prefer the Krugerrand over other coins and why? I don’t own gold, but am planning to buy some, Thanks.

susanc's avatar

@plethora: thanks – I’ll watch Jane Bryant Quinn and all other columnists/pundits with a more dubious eye in the future!

gailcalled's avatar

@stranger_in_a_strange_land : I have bought all the gold jewelry I intend to. It was simply an example.

john65pennington's avatar

In the mid-80’s, money market accounts were earning around 14% interest. wife and i have two. i am just wondering their value today. initial deposit was $10,000 each.

I am not aware of any investment that would give you this percentage return today.

plethora's avatar

10% returns on risk free money occur rarely and last for a only a short time. It is a dramatic economic abnormality. Interest rates today on risk free money are well within the normal range.

gailcalled's avatar

Interest rates on tax-free money market funds today (Vanguard and Fidelity NYS, for example) are a whopping .012%. Principal is very safe, but no guarantees.

plethora's avatar

@gailcalled This is probably a bit technical, but I would note that MM funds may not be as safe as most people think. Ownership of fund shares is quite different from ownership of the underlying securities. While the bonds in a tax-free fund might be AAA rated and insured, the shares of the fund usually are not. Bottom line, MM fund shares can fall below the $1.00 value that the fund itself tries to maintain.

plethora's avatar

Just re-read the question and to answer it directly, Yes, it is possible to make 8% to 10% over a reasonable period of time without undue risk, “undue” being the operative word. Not risk free, but with reasonable protection against undue loss. To take the most recent experience for most of us, the period 2007–2008, when many 401k balances dropped 30% to 50% during that period, and even today are still down 15%-20% from early 2007. I am well acquainted with two different asset managers who had no losses (active professional management using a combination of various investment vehicles) during that period. Each used entirely different investment strategies to achieve that success.

gailcalled's avatar

@plethora; I used the shorthand by saying “no guarantees.” It is rare, unless the entire global economy tanks, to have the MM fund share drop below the $1.00 mark. It has never happened in my lifetime, and I have lived (as an adult) for a long time.

plethora's avatar

@gailcalled It has happened within the last ten years and it was not widespread.
But you are right, it is very rare.

gailcalled's avatar

I am speaking only for my one and true lover, Vanguard.com

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