If I asked ten clients “what is a good rate of return?”, I’d probably get a wide range of answers. “What is your rate of return?” is a common question I am asked when getting acquainted with someone we may work with.
There is no single, correct answer to either question. A “good rate of return” is dependent on many factors and typically cannot be guaranteed; Financial objective(s), Investment Risk tolerance, Liquidity tolerance, investment allocation, a client’s values and personal situation, may all impact what would be a “good rate of return”.
Once a portfolio is constructed, based on these various factors, then the real world happens! Wars, Recessions, Geopolitical events, Changes to tax code or investment laws, Natural disasters, etc. The correct answer to the question “what is a good rate of return?” is very specific to the individual/family situation, and then is relative to portfolio performance in the real world for similar investments/portfolios. No financial professional or firm can predict the future, so even answering the question “what is your rate of return?” could be deemed misleading, or promissory, to an Securities and Exchange Commission (SEC) regulator.
Your client experience and rate of return must be experienced and is determined by looking backward. You also have the disclosure with nearly everyinvestment “past performance does not guarantee future results or performance”. This can be a challenge for people to understand and accept, as most people want certainty.
None of us enjoy seeing the stock market go down, but as it goes down, with history as a guide we may expect higher forward returns. This is more historical fact, than a silver lining! To bring this post full circle, you get to decide how much stock market risk you want in your portfolio. This may be 100%, 0%, or somewhere in between. Yep, there is no boilerplate answer to the question, “what is a good rate of return?” --- unless you choose a boilerplate firm offering a “one size fits all” portfolio.