Minimum Acceptable Returns

If you have been reading financial books or articles from the United States, it will suggest that return lower than 5% is mediocre. We all want high return for our funds, but how? In US, I guess it is much easier. You can easily buy S&P500 and get about 10% average annualised returns for past decades. However, many of us are skeptical whether STI ETF can do the same. Reason being is that US ETF has much lower management fee and the performance is better. Like it or not, US is the economy powerhouse, a place where everyone at least have some respect on. In Singapore, we can't say for sure in the long term.

I am an advocate for "Not losing is winning half of the battle". There are so many strategies and temptation to do cherry picking in stocks, buy high and sell low, or buy mid and sell mid. When you see fellow investors buy and sell, especially in good years, you will be wondering should you be doing the same.

My philosophy is simple. I am racing against myself. As long as my money grow at an acceptable rate, I will be contended. I don't need to compete with others. I would want a >5% return, but to be "sure win", the strategy is actually to deploy some high interest instruments such as bonds, fixed deposits. I will settle down for any interest >2.5%.

Here, you will be wondering, how 2.5% can help in building up a sound retirement fund. Agreed that it is tougher than if you can earn 10% return, but if you are frugal and effective in your finance, it is actually quite doable. You may be surprised it is our saving/prudence that helped most people accumulate their first pot of gold, not some lottery in stock market. Again, I have to highlight that frugal is not cheap (click here).

When opportunity arises to get better returns (spotted undervalued quality stocks/property/bonds), this is when I will increase my base interest rate to limitless. From historical data, I should be able to average out between 5-8% return. Not impressive, but there is a cushion of "sure win" minimum of 2.5% return. I don't believe market is a 1 way street that keep going up, there will be plenty of buying opportunities. If you are worried about missing the boat and opportunity cost, employ Dollar-Cost Averaging strategy (click here) and permanent portfolio (click here).

What are your views and your minimum acceptable returns?