A good rate of return on investment (ROI) depends on several factors. A big factor that would determine a good return on investment is the investors’ financial needs. If you’re thinking of investing now in order to secure your retirement in about 20 years time, your financial need for the ROI will not be as high as someone who is following the same investment strategy but is retiring in 5 years time. Therefore, what is considered a good return on investment is subject to the investors’ circumstances.
Furthermore, the type of investment and the risk involved affects the rate of return. In general, the higher the risk of investment, the higher the potential yield. Someone who is investing in stocks and shares shows willingness to take on a higher risk and may therefore enjoy a higher annual return on investment when compared to an investor who opts in for government bonds, which are considered a very safe choice. According to data on the compound annual growth rates (CAGR) collected in the last 80 years, an average return on investment with fixed return investments such as government bonds is 5.5% whereas for stocks and shares this figure falls between 10.2% and 11.9%. If you’re a property investor specialising in Buy-to-Let houses, a good rental yield is considered to be around 5-8%.