Is 20% Annual Return Realistic?

Market returns fluctuate like the tides. Consider the many factors that affect returns like timeframes, trading strategy, your particular portfolio, and social and economic upheavals. A stock may outperform 20 percent in a given year and maybe even 10 years, but this is the exception. Anybody can also get a one-year, one-time 20 percent return, but to expect the same rate year in and year out leans more toward the unrealistic.

If historical market returns at about 13 percent is correct, then 20 percent is on the high side of outperformance. Let’s assume a portfolio of 75 percent blue chips and 25 percent speculators with a buy and hold strategy. You may need a good stop loss on the 25 percent or risk not even making 13 percent per annum. Some traders also find that buying blue chips at the height of the market means waiting a while to break even.

The 'buy-and-hold-and-hope-for-the-best' strategy or even stubbornly sticking to only one strategy has proven to be the downfall of many newbie investors. You may rake in profits initially, but a surprise bearish turn will likely wipe out your capital. Traders should learn to play all sides of the market, and go wherever the trends are pointing.

Risk management along with stock rotation have also been cited as necessary to achieve long-term yearly earnings that outperform the market. You have your blue chips as foundation, small caps for short to medium term, and then possibly holding 6-12 month stocks to make up the rest as needed. It can’t hurt to start small, too. Conservative investors tend to cut their losses shorter, and thus may outrun unscrupulous ones.

On your hunt for information, you will get suggestions that all numbers of returns are achievable, but data backing up these claims are not given. You will have to research the volatility, drawdowns and time frames involved yourself. Take this as part of your trading education. Be persistent and stick to your strategy, but refine it according to market trends. Learn from your mistakes.