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Can You Really Get a 12% Return on Your Investments?

Whenever Dave Ramsey talks about how it’s more than possible to get a 12% return on investment, everyone seems to have an opinion on the subject. After all, that almost sounds too good to be true. Can you really get a 12% return on mutual fund investments, even in today’s market?

The reality is that you can! There are mutual funds out there that have averaged 12% annual returns over the course of their history—you just have to know how to look for them.  

But before we go there, let’s cover some of the basics about the average mutual fund return that you need to know about first.

Where Does the Idea of a 12% Average Return Come From?

When Dave Ramsey says you can make a 12% return on your investments, he’s using a real number that’s based on the historical average annual return of the S&P 500.

The what? The S&P 500. It looks at the performance of the stocks from the 500 largest, most stable companies in the New York Stock Exchange—it’s pretty much thought of as the most accurate measure of the overall stock market. 

The historical average annual return from 1928 through 2021 is 11.82%.1 That’s a long look back, and most people aren’t interested in what happened in the market 90 years ago.

So let’s look at some numbers that are closer to home over a 30-year span:

  • 1990 to 2020: S&P’s average was 11.55%.
  • 1985 to 2015: S&P’s average was 12.36%.
  • 1980 to 2010: S&P’s average was 12.71%2

Now remember, that’s spread out over 30 years. When you zoom in a little and look at the year-to-year returns, you might get a minor case of whiplash just looking at the numbers!

In 2015, the market’s annual return was just a lousy 1.38%. But wind the clock back to 2013 and you’ll find the market soared by 32.15%. Heck, even as crazy as 2020 was, the average rate of return ended up at 18.02%.3 

That’s why you can’t get so caught up in what happens in any given year. As an investor, you have to be ready for one-off bad years and great ones.

What you really need to care about is how your investments perform over the span of many years. And based on the history of the market, 12% is not some magic, unrealistic number. It’s actually a pretty reasonable bet for your long-term investments.

But What About the “Lost Decade”?

Until 2008, every 10-year period in the S&P 500’s history has had overall positive returns. But from 2000 to 2009, the market saw a major terrorist attack and a recession. And yep—you guessed it, the S&P 500 reflected those tough times with an average annual return of 1% and a period of negative returns after that, leading the media to call it the “lost decade.”4

But that’s only part of the picture. In the 10-year period right before that (1990–1999) the S&P averaged 19%.5 Put the two decades together and you get a respectable 10% average annual return. That’s why it’s so important to have a long-term view about investing instead of looking at the average return each year.

But that’s the past, right? You want to know what to expect in the future. In investing, we can only base our expectations on how the market has behaved in the past. And the past shows us that each 10-year period of low returns has been followed by a 10-year period of excellent returns, ranging from 13% to 18%! 

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There Is Something More Important Than a 12% Return

Will your investments make as much as the average mutual fund return? Maybe, maybe not. . . or maybe even more! We don’t have a time machine on hand, so we can’t know for sure.

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Market chaos, inflation, your future—work with a pro to navigate this stuff.

Here’s what we do know. Studies have shown that the single most important factor when it comes to retirement success isn’t investing in funds with the highest rate of return, how your investments are divided, or what your investment fees are. Those factors are all important to a certain point, sure.

But it’s your savings rate—the fact that you’re actually putting money into your 401(k)s and IRAs every month—that is most likely to help you have a successful retirement.6 Translation? It doesn’t matter what the average annual rate of return is if you don’t invest anything at all. Do you want to have money in retirement? Start putting money into your 401(k)s and IRAs. It’s not rocket science, folks!

In fact, how much and how often you save for retirement is 45 times more important than picking and choosing what to invest in.7 And yet some financial “experts” want to pick nits over a couple percentage points on a rate of return and fees? Get real!

If you invested 15% of a $50,000 salary from age 25 to 65 (assuming a 12% average annual rate of return), you would have more than $7 million saved up in your retirement accounts by the time you retire. And that’s assuming you don’t get a single raise over the course of your lifetime—which is highly unlikely! 

But just for kicks and giggles, let’s say we’re half wrong. Let’s say you invested that same amount, but only got a 6% annual rate of return. . .  what would happen then? Well, you would still wind up a millionaire with $1.2 million saved in your nest egg.

Don’t let some goober blogging from his mother’s basement or your broke brother-in-law with an opinion keep you from investing. Look at the facts, gather up all the numbers, and talk things over with a financial advisor who can help you make a wise decision based on all the available information.

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How to Invest in Mutual Funds

When you’re ready to invest (meaning you’re on Baby Step 4), make sure you’re investing 15% of your gross income into tax-advantaged retirement accounts. If your company offers a 401(k)—sign up for it. And if they offer a match—take it! That’s the perfect way to kickstart your investing goals.

When you start looking at mutual funds, be sure to diversify your investments. We recommend splitting it all up equally in four categories, like this:

  • Growth
  • Growth and income
  • Aggressive growth
  • International

So do your research and look for mutual funds that average or exceed 12% long-term growth—it’s not hard to find a good number of them to pick from, even in today’s market.

We know all the numbers, percentages and weird terms can make investing seem really complicated, but stick with us here. Taking your time to learn how to invest is worth it. And it’s going to pay off in the long run. And you don’t have to walk it all on your own. An investment professional can help you find the right mix of mutual funds.

The idea is that you invest for the long haul. Following Dave’s investing philosophy has inspired tens of thousands of Americans to start investing in order to reach their long-term financial goals—and it can work for you too!

Why You Need an Investment Pro

The stock market will have its ups and downs, and the downs are scary times for investors. They make knee-jerk reactions by pulling their money out of their investments. That’s exactly what millions of investors did as the market plunged back in 2008 and during the COVID-19 global pandemic of 2020.

But guess what? Those people who jumped off the investing roller coaster only made their losses permanent. If they’d stuck with their investments like we teach, their value would have risen along with the stock market as the years went on. Tough luck for them—they didn’t get to reap the benefits as the market recovered.

This is just another reason you need an investment pro on your side! They can help you keep your cool in crazy times and focus on the long term.

In fact, upping your investments during down markets can actually help drive the big-time total return on investments in your portfolio. It’s important not to be scared by the short term (or try to time the market and chase performance spikes). Remember, investing is a marathon—it takes endurance, patience and willpower, but it will pay off in the end.

Bring up your investing concerns and goals with an investment professional in your area today!


Next Steps

  • We generally suggest investing 15% of your gross income every month for retirement. Check out our investment calculator to get an idea of how much your money could be worth by the time you retire if you start investing today.
  • Already investing? If so, make sure you evaluate the performance of your investments every now and then.
  • If you have questions about investment strategies, connect with a SmartVestor Pro. These investment pros stay informed on how the market is doing and can help you form a gameplan for your savings goals. 
Find an Investment Pro

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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