Quora Answer: How Realistic is a 6% to 7% Return on Investment?

The following is my answer to a Quora question: “How realistic is a 6% to 7% return on your investments, and what strategies would you recommend attaining it?”

A 6 to 7% yield on your investments is not only realistic, but attainable.  One way is to have a heavy weightage towards equities.  In fact, until Donald John Trump enacted his economic slash and burn, the market was doing very well, and projected to do so.  Investors were making well over 7%.  My clients were making close to 15% with a balanced risk profile, because their funds were heavily concentrated in East and Southeast Asia.  This is simple buy and hold, which is effective over an extended investment-horizon.

Buy and hold works when you understand market fundamentals well, and economic trends.  For example, market fundamentals tell us that the greater China region produces over 80% of chips.  This means, whether the economy rises or falls, as long as we use electronics, their earnings will hold steady and make good returns.

Another way involves more active management, and that means paying attention to cycles.  This involves doing quite a bit of homework, and taking advantage of market timing.  An example of market timing was when I recommended a buy for Apple shares when their stock prices dropped due to disappointing earning calls.  This was due to market consolidation in China.  They earned less; they did not make a loss.  Apple has historically provided predictable dividends, and they have the war chest to maintain the stock price.  The drop was due to market sentiment, not company fundamentals.

If you are more aggressive, and have a high risk tolerance, another example of timing would be to take advantage of market turmoil, and central bank efforts to stabilise the market.  For example, when the UK does exit the EU, there will be market turmoil.  If we assume that they choose to address liquidity risk through quantitative reasoning, there will be more money printed.  All that cash will be used to buy assets before the currency falls again.  In that short window, you can sell stocks while the prices rise to take a profit share before the market falls again.  This involves carefully choosing the correct stock and taking a position beforehand.

Additionally, depending on the resources you have, the funds available and your business acumen, there are another five or six techniques.  Investing is a science, and involves a lot of calculations.  It is not gambling, and does not involve “gut feel”.