Equities Return
Return on Equity (ROE)
First of all, equities return is known as the percentage of earning based on your initial investment. This is known as "return on equity" or simply ROE. Simply put, if you invest $100 and earn $15 from that initial investment then your ROE is 15% which is good. So now lets get into what to expect based on your investment.
Risk and Reward
Equities Return - What Should I Expect?
This greatly depends upon the type of investment. A savings account might earn 1%, a money market account might earn 2%, a CD (certificate of deposit) account might make 3%, and then you get into stocks (equities)...
Equities return correlates with risk. Simply put, higher risk equals higher potential rewards and lower risk equals lower potential rewards. A general average for the stock market on an annual basis is 8-12%. Given the type if investing strategies used by Wall Street,
you can expect an equities return from a mutual fund to be anywhere between 5-20% per year, with 20% being more rare. Then again, you can also see an equities return in the negative!
Now I know that for most of you out there, and equities return of just 10% per year isn't something to jump up and down about. Well if you really know how to pick winning stocks then you will obviously have a much more attractive ROE - remember, that 8-12% figure has to include all of the losing stocks too (but we all know better than to hold onto losing stocks... right? I hope so.
So how do we get an even higher equities return?
Once you are an efficient stock market investor, you can look into stock options. Equities already contain a lot of risk, and their options carry even more risk than the underlying equity - SO BEWARE! Only invest in options if you really know what you are doing.
Equities return can shoot through the roof with properly executed option trading. Percentage increases are doubled and tripled with leverage on proper options, but then again the losses can multiply quickly as well; this is why you need to be an expert before trying to trade options.
Improve Your Equities Return Beyond the Stock Itself:
Selling Covered Call Options:
As with all options trading, more risk is involved. However, when used properly, selling options can increase your ROE by providing you with a monthly income from selling covered call options on your stock. These monthly premiums are
a great source of extra income as you can make more money on your investment before you even sell it. Learn more on the left.
Good Luck, and have fun investing!