Where Can You Find a Guaranteed 10% Return?
June 24, 2007
Making his money work so he doesn’t have to, that’s the goal for today’s guest writer, Lazy Man. If you’re interested in learning about using Prosper or alternative income streams, subscribe to his feed.
J.D. from Get Rich Slowly had a reader ask where I can I find a guaranteed return of 10%. The short answer is that there is no place where you can get a guarantee of 10%. If they were common, no one would be buying treasuring bonds, CDs, or putting money in high-interest savings accounts at much cheaper rates. In fact, if a 10% guaranteed investment did exist, and it was easy for the common man to get it, inflation would adjust upwards of that 10% level. Business owners would realize they could be more profitable taking that guaranteed return rather than taking a risk that their business would outperform it. Some would probably just quit the business all together, but others would simply charge more for their products, because they are inherently taking more risk.
The article focuses on a series of solutions that I thought weren’t particularly related to the question. The solutions mentioned require an extraordinary amount of luck in being at the right place at the right time, with the right knowledge. None of them really scale well as you can’t plan for such opportunities. One example was a person who visited a donut shop every day and one day found out how he could help out the shop and make some money for himself. How many thousands of dollars did the donut shop visitor have to spend eating donuts there everyday to make his $3,000? Is he going to start eating donuts at all the donut places in an effort to find more stores that need new donut mixers?
Some of the real estate examples in the article didn’t strike me as accurate either accurate either. Sell a place for 107K and there’s going to be transaction costs that probably bring it back to around 100K meaning that you’ve wasted a lot of your time. And if you can’t sell it right away, you’ll start losing money. It’s easy to make being a landlord seem like an easy way to make money. “$20,000 can often easily kick off $2,000 per year in cash” is a huge stretch. More than likely, you are going to lose money each money on the rent. There’s a chance that you can find one bargain and maybe rent it for positive cash flow, but this is 1 in 10,000 search in many places – not easy by any means. For an example, in my old Boston suburb, there’s a difference of $500/month in my mortgage and the rent. I hope to break even with tax benefits, equity, and appreciation. It’s a similar situation out in Northern California where I moved to.
In the end, you might not be able to get a guaranteed 10% return. However, many experts believe that you can come very close with a mixture of securities over the long-term. Just like you can’t guarantee me there’s no such thing as a pink penguin, I can’t guarantee you a 10% return. We can only look at the vast amount of evidence to date and make conclusions. Some years you’ll make more and other years you’ll make less, but it seems to be the case that in an average lifetime, you’ll probably be in the 8%-12% range. Such results have been proven over and over again.
In a slightly unrelated note… in the comments J.D., seems to have found that blogging is not passive income. That’s exactly why I call blogging alternative income. I made the same mistake thinking it was “passive” when I started because it can earn me money while I’m on vacation. However, I probably work twice as hard when I’m blogging than I do at my day job.
All posts by Ben Edwards