The best you can hope to achieve with an investment depends on the nature of the investment. Some investments — such as savings accounts and certificates of deposit (CDs) — offer stable, secure returns. Other — such as stocks, bonds, and mutual funds — depend
entirely on market conditions. A return is an investment’s performance over time. It’s easy to calculate the best-case scenario with vehicles such as savings accounts and CDs. On the other hand, you can never predict with 100% accuracy what kind of return you will get with more volatile investments such as stocks, bonds, and mutual funds. You can, however, see how these investments have performed in the past. Recent history has many investors believing that the markets can only go up. If you look at returns on some stock investments, you can understand why. For example, the top-performing stock in 1998, which was an online Web site called Amazon.com, racked up staggering returns of 966% in 1998. If you were lucky enough to invest $1,000 at the end of 1997, your money would have been worth $10,664 a year later. That’s probably the best oneyear return any investor can ever hope for — and then some. The next-best-performing 24 stocks in 1998 returned between 164% and 896%. The best-performing stock mutual funds returned well over 70%. In sharp contrast, the best corporate bonds returned more than 15%. Still, if the average stock returns about 10% a year, 1998 was quite a year for many investors.
In fact, the year capped off a decade-long boom for the stock market in which the top-performing stock (Dell Computer Corp.), over the ten-year period from 1988 to 1999, gave investors a very pleasing 79% average annual return. Equally noteworthy, the next best 24 top-performing stocks returned 43% to 69% in the same period.
On average, however, stocks, bonds, and mutual funds don’t give investors these kinds of returns. Large company stocks returned only about 18% during the past decade. Corporate bonds gave investors about 10.8% in the same period.
entirely on market conditions. A return is an investment’s performance over time. It’s easy to calculate the best-case scenario with vehicles such as savings accounts and CDs. On the other hand, you can never predict with 100% accuracy what kind of return you will get with more volatile investments such as stocks, bonds, and mutual funds. You can, however, see how these investments have performed in the past. Recent history has many investors believing that the markets can only go up. If you look at returns on some stock investments, you can understand why. For example, the top-performing stock in 1998, which was an online Web site called Amazon.com, racked up staggering returns of 966% in 1998. If you were lucky enough to invest $1,000 at the end of 1997, your money would have been worth $10,664 a year later. That’s probably the best oneyear return any investor can ever hope for — and then some. The next-best-performing 24 stocks in 1998 returned between 164% and 896%. The best-performing stock mutual funds returned well over 70%. In sharp contrast, the best corporate bonds returned more than 15%. Still, if the average stock returns about 10% a year, 1998 was quite a year for many investors.
In fact, the year capped off a decade-long boom for the stock market in which the top-performing stock (Dell Computer Corp.), over the ten-year period from 1988 to 1999, gave investors a very pleasing 79% average annual return. Equally noteworthy, the next best 24 top-performing stocks returned 43% to 69% in the same period.
On average, however, stocks, bonds, and mutual funds don’t give investors these kinds of returns. Large company stocks returned only about 18% during the past decade. Corporate bonds gave investors about 10.8% in the same period.
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