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? The reality is that you can!

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

When we recently asked The Ramsey Baby Steps Community on Facebook, “What’s something about investing you wish you’d known 10 years ago?” the topic of investment returns came up. Cheryl S. wishes she had known sooner that there are “mutual funds out there with a track record of over 10% [returns] . . . Who knew?”

Cheryl is right! In fact, there are mutual funds out there that have averaged 12% annual returns (and more) over the course of their history—you just have to know how to look for them.  

But before we get into that, let’s cover the basics of average mutual fund returns.

Ramsey Solutions is a paid, non-client promoter of participating Pros.

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’s a stock market index that tracks the performance of hundreds of the largest publicly traded U.S. companies. And it’s considered an accurate measure of the overall U.S. stock market. 

The historical average annual return from 1928 through 2025 is 11.86%.² That’s a long look back, and most people aren’t interested in what happened in the market nearly 100 years ago.

So here are some 30-year numbers that hit closer to home:³

30-Year Period	S&P 500 Average Annual Rate of Return
1981–2010	12.08%
1986–2015	11.73%
1996–2025	11.80%

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 2022, the market’s annual return was a lousy -18.04%—that’s quite a nose dive. But fast-forward one year to the end of 2023 and you’ll find the market soared by 26.06%, more than making up for the prior year’s losses. Heck, even as crazy as 2020 was, the average rate of return ended up at 18.02%.⁴ 

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 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 around 1%, followed by a period of negative returns, leading the media to call it the “Lost Decade” and the “Decade from Hell.”^5,6

But that’s only part of the picture. In the 10-year period right before that (1990–1999), the S&P averaged close to 19%.⁷ 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%! 

There’s 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.

Here’s what we do know. Studies have shown that the single most important factor in retirement success isn’t your 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—how much money you’re actually putting into your 401(k)s and IRAs every month—that’s most likely to help you have a successful retirement. 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 way more important than picking and choosing what to invest in. And yet some financial “experts” want to pick nits over a couple of 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.

Most Important Factors That Impact Investing

Factor	Why It Matters	Ramsey Take
Savings rate	You can’t grow money you don’t invest.	Investing consistently matters more than chasing returns.
Consistency	Regular investing builds momentum over time.	Monthly investing beats trying to time the market.
Time in the market	Compound growth needs time to work.	Start early and stay invested.
Rate of return	Investment performance impacts growth—but only if you’re actually investing.	Having great returns means nothing if you’re not saving enough (or saving nothing at all).

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 in 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 an instant 100% return on your investment and a perfect way to kick-start your investing goals.

When you start looking at mutual funds, be sure to diversify your investments. We recommend splitting them equally among four categories of funds, 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, no matter what’s happening in the market today.

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 you don’t have to figure it all out on your own. An investment professional can help you find mutual funds to consider adding to your portfolio.

The idea is that you invest for the long haul. Ramsey’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

A major reason you need an investment pro on your side is to help you keep your cool in crazy times and focus on the long term. The stock market will have its ups and downs, and the downs can be scary for investors. A knee-jerk reaction is to pull money out of your investments . . . which would be a terrible mistake.

Millions of investors panicked as the market plunged in 2008 and during the COVID-19 global pandemic of 2020, pulling money from their investments as fast as they could to try to prevent further losses.

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 investments would’ve risen in value along with the stock market as the years went on. Unfortunately, they missed out on the benefits as the market recovered.

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 that takes endurance, patience and willpower.

Talk through your investing concerns and goals with an investment professional in your area today!

 

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.