--- title: "What is a Good Annual Rate of Return?" description: "What is a good rate of return on investment? How much should your stocks grow every year? Everything you need to know to get the best ROI you can!" canonical_url: https://trendshare.org/how-to-invest/what-is-a-good-annual-rate-of-return markdown_url: https://trendshare.org/ai/what-is-a-good-annual-rate-of-return.md published: 2014-07-07 last_updated: 2025-11-28 content_license: https://trendshare.org/about/disclaimer --- # What is a Good Annual Rate of Return? Source: https://trendshare.org/how-to-invest/what-is-a-good-annual-rate-of-return Updated: 2025-11-28 **Quick Take:** A good annual return for long-term stock investing is typically **7-10%**. To truly build wealth, your returns should beat inflation (~3%) and taxes. Use the Trendshare value investment ROI calculator below to see how your money compounds over time.

What is a good annual rate of return: typically 7-10% for long-term stock investing after inflation. Use the ROI calculator to model your goals. For decades, investors have asked what counts as a good return. The short answer: it depends on your goals, timeline, and risk tolerance. Historically, the US stock market has averaged about 10% annually, while safer vehicles like bonds or savings accounts return much less. ## Why Rate of Return Matters Compounding interest feels like magic especially when your money grows every year. If you [invest $1000 at 5% simple interest](https://trendshare.org/how-to-invest/how-to-invest-1000-dollars), you'll have $1750 in 15 years. That's $750 in interest. If, instead, you invest at 5% annual [compound interest](https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator), you'll have about $2079. Compounded monthly, you'll have about $2114. The real magic comes when you earn a *higher* rate of return on your investment. Instead of 5%, what if you could get an 8% interest rate? 10%? On the other hand, if you earn only 3% in a high-yield savings account, your wealth grows much more slowly. That gap between 3% and 8% compounds into a huge difference over decades. This matters because this is *your* money, set aside education, retirement, or buying a house. That [money is leverage](https://outspeaking.com/words-of-business/the-usury-of-payday-loans.html); it buys you freedom. ## Typical Returns by Asset Class Different types of investments have different returns. Many of these differences depend on the investments themselves. For example, you might see a real estate holding grow in value at 6% year over year. Consider, though, that there's a fixed supply of real estate, and that not all parcels of land are the same. Would you want to trade an acre of land in Death Valley, California for an acre of land in downtown San Francisco? (Probably, but who would be on the opposite side of that trade?) Or consider a bond that gives you a reliable payout every quarter compared to a stock that pays no dividend. One may be more valuable than the other depending on your financial position. It's important to know what your goals are and why you're investing in one thing versus another to evaluate if the return and the time to return make sense in your situation. It's also important to be aware of market conditions. In the past couple of years, buying bonds or Treasury bills could have been a poor investment as the prime rate increased, because the face value of the bonds decreased. On the other hand, buying land might have been a good investment as the desire for more housing increased. Do your homework as always! ## How to Calculate Your Effective Rate of Return After you choose your investing goals, you will have a target in mind. You know how much money and time you have to invest. You know the finish line. You have enough information to calculate what gets you from here to there. The magic of time and compounding interest will help. This is especially important for retirement planning; the earlier you start, the more a high return will pay off. The less time you have before you want to retire, the higher return you need. If you can sell something next year for $1100 and want to make a 10% profit on it, what should you pay for it now? The math is simple. Your price plus ten percent returns equals $1100. $1100 is 110% of your price. Divide $1100 by 110% (divide by 1.1) and you get $1000. This means you must pay no more than $1000 right now to get a 10% return when you sell. How do you calculate that 10%? Suppose you've invested $1000. In two years, you sell the investment for $1500 (great job!). You've made $500 in profit as an amazing 50% return. Take 15% of that away (don't forget the taxes you pay; $75 in long terms capital gains here), so you're left with $1475. That's a 47.5% return in two years. Not bad! Now account for two years of 3% inflation, and you end up with $1388. That 38.8% return after two years is still great, but it's a lot less than the $1500/50% you had when you started. (That 38.8% return means your money multiplies by 2 every 4 years. That's amazing!) The annual rate of return on an investment is the profit you make on that investment in a year. For every dollar you invest, how much do you get every year in return? The simple way to calculate this value is to look at a simple percentage. You invested $100 and made $3, so your return is $3/$100 or 3%. Remember the inflation, fees, and taxes picture you face. Factor them in. Depending on your investment goal and timeline, you'd like to know what a hypothetical million dollars will buy you in 10, 20, or 40 years. According to the [U.S. Bureau of Labor Statistics](https://www.usinflationcalculator.com/), inflation averaged 3.2% annually over the past decade, though it spiked to 9.1% in 2022 before moderating. The [historical stock market return](https://www.investopedia.com/articles/personal-finance/050615/are-we-overestimating-future-returns.asp) data shows the S&P 500 averaged 10.26% annually from 1957 to 2023, making it a useful benchmark for comparison. A good annual return on stocks beats inflation and taxes and builds your wealth. ### 2025 Investment Returns Comparison Different investment vehicles offer vastly different returns. Here's how major investment types compare in November 2025, based on current market data and historical averages:
Investment Type Typical Return (Annual) Risk Level Best For After Tax/Inflation*
[High-Yield Savings](https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/) 4.0-5.0% Very Low Emergency fund, short-term goals 1-2%
[Municipal Bonds](https://www.sec.gov/investor/pubs/inwsmuni.htm) 3.5-4.5% Low Tax-free income, conservatives 3-4%**
[I Bonds (Treasury)](https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm) 5.27% Very Low Inflation protection (1-year lock) 4-5%
[Corporate Bonds](https://investor.vanguard.com/investor-resources-education/understanding-investment-types/bonds) 5.0-7.0% Low-Medium Income investors, 5-10 year horizon 2-4%
[S&P 500 Index](https://www.spglobal.com/spdji/en/indices/equity/sp-500/) 10.3%*** Medium Long-term growth (10+ years) 6-7%
[Dividend Stocks](https://trendshare.org/how-to-invest/what-is-dividend-yield) 8-12% Medium Income + growth, retirees 5-8%
[Value Stocks](https://trendshare.org/how-to-invest/what-is-value-investing) 12-15% Medium-High Active investors, 3-5 year horizon 8-11%
[Growth Stocks](https://www.investopedia.com/terms/g/growthstock.asp) 15-25% High-Very High Aggressive investors, high risk tolerance 10-18%
* Assumes 15% long-term capital gains tax and 3% inflation. ** Municipal bonds are often tax-free. *** Historical average 1957-2023. As you can see, the relationship between risk and return is clear: higher potential returns come with higher risk. A [high-yield savings account](https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/) offers safety but barely beats inflation after taxes. Meanwhile, growth stocks can deliver exceptional returns but with significant volatility and risk of loss. ### Real Portfolio Examples for Different Investor Profiles Understanding returns in theory is one thing. Seeing how they work in actual portfolios is another. Here are three realistic portfolio allocations based on risk tolerance and life stage, using actual ETFs you can buy today: #### 🛡️ Conservative Portfolio (5.5% Expected Return) **Best for:** Retirees, risk-averse investors, 5-10 year time horizon **Allocation:** - 50% Bonds: [BND (Vanguard Total Bond Market)](https://investor.vanguard.com/investment-products/etfs/profile/bnd) (4.5% yield) - 30% Dividend Stocks: [SCHD (Schwab U.S. Dividend Equity)](https://www.schwabassetmanagement.com/products/schd) (7% total return) - 10% REITs: [VNQ (Vanguard Real Estate)](https://investor.vanguard.com/investment-products/etfs/profile/vnq) (6% yield + appreciation) - 10% Cash/High-Yield Savings (4.5% yield) **Expected annual return:** 5.5% | **After tax/inflation:** 3-4% $100,000 invested grows to $174,494 in 10 years | Monthly income: ~$400 #### ⚖️ Balanced Portfolio (9% Expected Return) **Best for:** Mid-career professionals, moderate risk tolerance, 10-20 year horizon **Allocation:** - 50% S&P 500: [SPY (SPDR S&P 500)](https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-trust-spy) (10% historical return) - 20% International Stocks: [VXUS (Vanguard Total International)](https://investor.vanguard.com/investment-products/etfs/profile/vxus) (8% expected) - 20% Bonds: [BND (Vanguard Total Bond Market)](https://investor.vanguard.com/investment-products/etfs/profile/bnd) (4.5% yield) - 10% Small-Cap Value: [VIOV (Vanguard S&P Small-Cap 600 Value)](https://investor.vanguard.com/investment-products/etfs/profile/viov) (12% historical) **Expected annual return:** 9% | **After tax/inflation:** 5-6% $100,000 invested grows to $236,736 in 10 years | Doubles every 8 years #### 🚀 Aggressive Portfolio (12% Expected Return) **Best for:** Young investors (20s-30s), high risk tolerance, 20+ year horizon **Allocation:** - 40% Growth Stocks: [VUG (Vanguard Growth)](https://investor.vanguard.com/investment-products/etfs/profile/vug) (14% historical return) - 30% S&P 500: [VOO (Vanguard S&P 500)](https://investor.vanguard.com/investment-products/etfs/profile/voo) (10% historical) - 15% Small-Cap Growth: [VBK (Vanguard Small-Cap Growth)](https://investor.vanguard.com/investment-products/etfs/profile/vbk) (13% historical) - 10% Emerging Markets: [VWO (Vanguard Emerging Markets)](https://investor.vanguard.com/investment-products/etfs/profile/vwo) (11% expected) - 5% High-Yield Savings (4.5% yield, emergency fund) **Expected annual return:** 12% | **After tax/inflation:** 8-9% $100,000 invested grows to $310,585 in 10 years | Doubles every 6 years Note: These portfolios use low-cost index ETFs with expense ratios of 0.03-0.15%. All return figures are historical averages or reasonable projections based on current market conditions. Past performance does not guarantee future results. Consider your personal financial situation, tax status, and risk tolerance before investing. This is educational content, not personalized investment advice. ## Why Your Returns Must Beat Inflation You know what taxes and fees are. What's inflation? Prices tend to rise over time. Maybe you have a cable bill that keeps going up, or you remember when milk and gasoline both cost less than $2 per gallon. There are [many economic reasons why prices rise gradually over time](https://outspeaking.com/words-of-politics/what-is-currency-and-fiat-currency.html). This is normal economics. Inflation means that, over time, a dollar is worth a little bit less. Inflation has traditionally been about 2% or 3% a year (much less so since the 2008 financial crisis, but it's a good rule of thumb). The [U.S. Bureau of Labor Statistics Consumer Price Index](https://www.bls.gov/cpi/) tracks this officially, and as of 2025, inflation has moderated to around 3.2% after peaking at 9.1% in mid-2022. The operative word here is "time". If you're saving for retirement in 20 or 30 years, inflation will work against you. A million dollars is a lot of money, but it won't buy as much in 20 or 30 years as it will today. It would have bought a lot more 20 or 30 years ago too. If your investment grows more slowly than inflation, you're losing money because your buying power is decreasing. For example, if you need $1,000 a month to pay your expenses now and think those expenses will rise to $1,200 when you retire, you'll need to make $1,200 a month to pay your bills. Assuming inflation is between 2% and 3% annually (based on [Federal Reserve target rates](https://www.federalreserve.gov/faqs/economy_14419.htm)), any investment that earns you money over the long term must make at least 3% a year just to break even. Remember that the relationship between the inflation rate and the stock market is complicated. The market as a whole *should* match or exceed inflation every year. All those price increases have to go somewhere. That's no guarantee for every individual stock or the market as a whole in any given year, however. ## Why Your Returns Must Beat Taxes Taxes are as inevitable as inflation. When you sell most kinds of investments, you'll have to pay taxes on any profit. The specific taxes you will pay depends on the type of investment, how long you held it, your other income, and where you live. For more details, either do the boring research yourself or consult a tax professional. The broad implication is similar to inflation, however. To calculate your *effective rate of return* (how your invested money is actually growing), you must factor in taxes. If, for example, you are subject to [US capital gains taxes](https://www.irs.gov/taxtopics/tc409), figure that you'll pay 15% taxes on the profit of any investment you sell (if you hold it for at least a year). The resulting amount is your effective profit. You can delay taxes (invest pre-tax income in something like an [employer-sponsored 401(k)](https://trendshare.org/how-to-invest/always-choose-employer-matching-401k-contributions) or a [SEP](https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-sep), in the theory that your marginal tax rate will be lower in the future than it is now) or avoid taxes (invest post-tax income in a [Roth IRA](https://trendshare.org/how-to-invest/when-should-you-open-a-roth-ira) and avoid paying any taxes on gains in the future), but the government will eventually get its due. Plan for it. ## Investment Returns Must Beat Fees You're probably paying [broker fees](https://trendshare.org/how-to-invest/broker-fees) for every transaction. If you're investing in funds instead of stocks, you may be paying additional fees. In particular, mutual funds tend to have higher fees than [ETFs](https://trendshare.org/how-to-invest/should-you-invest-in-etfs). If an average fund return on investment is 5% annually and you're paying 2% in fees, you're only getting a 3% return and you need to look elsewhere. If you're paying no fees for an ETF and you've only paid $4-10 dollars commission for the purchase and the same for the sale, you're already way ahead of investing in funds. ## Using ROI to Compare Investments ROI, or Return on Investment, measures the efficiency of an investment. For every dollar you put in, what kind of profit can you expect? Use this ROI percentage to compare investments—even if they're not otherwise similar. For example, buying a [blue chip](https://trendshare.org/how-to-invest/what-is-market-capitalization) stock that raises its dividend every year is different from buying a small cap stock that invests its revenue in growth. The risk profiles for these companies are different. The research you need to do is different between them. Yet comparing only ROI can give you a sense of where you want to focus. Furthermore, your target rate of return determines which opportunities make sense for you. If you can't buy a stock at the right price, move on and find something better. Assume that the [S&P 500 has given a 7-10% return every year over the past 50 or 60 years](https://trendshare.org/how-to-invest/buy-the-s&p-index-fund). If that's enough, buy it. Otherwise, you need to find a better investment. The average return on investment for most investors may be, sadly, much lower, even 2-3%. Putting your money in a bank account will give you a negative return, after taxes and inflation. So will a CD or a money market account. Investing in Treasury Bills may let you avoid taxes, but in the past few years they've underperformed inflation. Even the most conservative, tax-free investment strategy of buying [municipal bonds](https://www.sec.gov/investor/pubs/inwsmuni.htm) can get you 4% tax free every year (depending on whether you pay state or local taxes on your returns). That's 1-2% after inflation: a mediocre return, all things considered, but very conservative. You'll double your money in 35-72 years. You can do better. Maybe 10% is your goal, but can you do 12%, after taxes and inflation? (A high rate of return, of course, will beat that, but you'll have to work for it.) Assume that inflation is an annual 3% and capital gains are 15%. If your target is a 15% return *before* inflation and taxes, you'll end up with 12.4% return. (If you pay 20% in taxes, you'll end up with 11.6% return.) Remember, this rule of thumb applies whether you're investing in real estate, savings accounts, mutual funds, or even long-term life insurance. Factor in what you want to make, account for fees and taxes, and then work backwards. ## How ROI Calculation Fits into Personal Finance Of course, this means nothing if you're investing money you'd otherwise be using to pay off credit cards. The best credit card rates are going to be at least 16% annually, so you'll have to make at least that after taxes and inflation to come out ahead. Your best personal finance move is to pay off any personal loans, credit cards, or other debt which holds an interest rate higher than your expected investment returns. You won't have to pay any taxes on this, and you'll be improving your monthly cash flow. With everything else equal, paying of a loan with a 10% APR is better than getting 10% on an investment with the same money. Consider that before you sink all your available cash into stocks or funds. ## Active ROI Targets for Value Investors ### Worked example: a 50/30/20 Vanguard ETF portfolio The following table shows a worked example using real trailing returns from fund providers (Vanguard) as published on Yahoo Finance. Numbers are trailing returns (annualized) as of **2025-10-20**. Use these to estimate the historical perofmrance of a 50% VTI / 30% BND / 20% VXUS allocation.
Ticker Fund 1yr 3yr (ann.) 5yr (ann.) 10yr (ann.) As-of
VTI Vanguard Total Stock Market ETF 17.34% 24.09% 15.66% 14.66% 2025-10-20
BND Vanguard Total Bond Market ETF 2.90% 4.94% -0.46% 1.84% 2025-10-20
VXUS Vanguard Total International Stock ETF 17.18% 20.84% 10.43% 8.36% 2025-10-20
**Weighted portfolio (50/30/20)** **12.98%** **17.70%** **9.78%** **9.55%** **2025-10-20**
Source: trailing returns (annualized) shown are from a Yahoo Finance snapshot dated **2025-10-20**. Vanguard fund pages for VTI, BND, and VXUS are provided as primary provenance links; see the Dataset below for distribution URLs. Broad-market S&P 500 level from FRED (observed 2025-11-21). #### How we calculated the weighted returns We computed the portfolio return as a weighted average of each fund's annualized trailing return. Formula: `Portfolio return = w1*R1 + w2*R2 + w3*R3`, where w are allocation weights and R are per-fund returns. For the 1-year column: `0.5*17.34% + 0.3*2.90% + 0.2*17.18% = 12.98%` (rounded). Note: these are historical trailing annualized returns, not forecasts. Rounding may cause small differences. **Data notes:** Trailing returns come from Yahoo Finance snapshots dated 2025-10-20; portfolio values are computed as weighted averages (see calculation section). Always verify current returns on fund pages. CSV provided for reproducibility; cite the article for context and details. [Value investing](https://trendshare.org/how-to-invest/what-is-value-investing) helps you find good opportunities. The best way to make money in the stock market is to buy good investments at great prices and sell at a profit. Figuring out the right price for a stock requires you to know how much you want to earn when you sell it. A really good return on investment for an [active investor](https://trendshare.org/how-to-invest/what-is-active-investing) is 15% annually. It's aggressive, but it's achievable if you put in time to look for bargains. You can double your buying power every six years if you make an average return on investment of 12% after taxes and inflation every year. More importantly, you can beat the market at that rate. That's your goal. If you [look at the raw data for the average rate of return for the stock market](https://www.spglobal.com/spdji/en/indices/equity/sp-500/), you'll see 10.3% as the historical average (1957-2023), though individual years and decades vary widely. The [NYU Stern School of Business historical return data](https://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls) confirms this long-term performance. Some decades are much better. Some are much worse. For any individual investment, you should also look at average returns. For example, the [S&P 500 average return](https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp) can swing wildly from year to year; if you invested on January 1, 2022 and took your profits or losses on December 31, 2022, you'd have lost 18%. The year before, you'd have gained 28.47%. In 2024, the market rebounded strongly with a +24.23% return. Check the historical average returns to estimate your potential returns and measure risk and likelihood of any wild swings. Anyone promising a reliable and higher investment return is taking big risks. No reputable investment advisor will stand behind this word. The best investment returns do take on risk, but *repeatability* is more important over the long term than one huge winning streak followed by mediocre or terrible performance. Use a benchmark of 8% for a good stock ROI. This is a good way to objectively assess the potential profitability of your investments. Putting your money in a simple index fund and letting it grow will return you an average 8-10% over the long term, if the market continues to behave as it has for the past several decades. If you're going through the work of choosing your own investments, you deserve to make at least that. Settle for nothing less.