Maximizing Returns: Strategies To Earn 10% On Investments

There are many ways to make a 10% return on your investments, but it's important to remember that there is no such thing as a guaranteed return. Every investment comes with a risk/reward trade-off. The lower the risk, the lower the potential return. Here are some options for potentially achieving a 10% return:

- Private credit market: Private credit deals typically offer higher yields (between 9-20%) and are secured by assets such as machinery or land.

- Paying down high-interest loans: Paying off a credit card with a 20% interest rate is equivalent to receiving a 20% investment return.

- Stock market investing via index funds: Investing in individual stocks can be risky, but index funds offer a way to diversify across a large number of stocks, providing more predictable returns. For example, the S&P 500 has historically returned about 10% per year.

- Real estate investment trusts (REITs): REITs allow you to invest in real estate without the hassle of managing properties. They have outperformed the broader stock market during periods of high inflation.

- Fine art and collectibles: Art investing platforms like Masterworks allow investors to buy shares in artwork, which has historically outperformed the S&P 500.

- Buying an existing business: Buying a local business can provide a high return on investment, but it requires more work and has a higher risk than other investments.

Paying off high-interest debt

Most people with credit card debt cannot afford to pay it off, which is why they have the debt in the first place. If this is the case for you, consider a:

• Debt Consolidation Loan: This allows you to combine multiple debts into a single payment with a lower interest rate. Instead of paying off three credit cards with interest rates above 20%, you can apply for a consolidation loan with an interest rate of 10% or less and use the funds to pay off your credit cards.
• 0% APR Credit Card: A 0% interest, balance-transfer credit card allows you to transfer all your debt to this card and pay off the balance without incurring any interest during the promotional period, which is typically one year. However, borrowers with credit scores below 690 usually do not qualify for these cards.

If you are struggling to make even the minimum monthly payments on your credit cards or loans, contact your lender. They may be willing to reduce your minimum payment or interest rate. Alternatively, consider hiring a reputable debt relief company to negotiate on your behalf, but be aware of potential scams in this area.

Before deciding to pay off debt or invest, ensure you have at least some emergency savings, have fully captured any employer match, and have paid off any credit card debt. Additionally, investing in a tax-advantaged account and having a balanced asset allocation can impact your decision.

As a general guideline, if the interest rate on your debt is 6% or higher, it is typically more beneficial to pay off the debt before investing additional money towards retirement. However, this guideline is based on certain assumptions and may not apply to everyone.

Other Ways to Make a 10% Return on Investment

• Private Credit Market: Investing in the private credit market through alternative investment platforms like Percent can provide access to higher returns with lower volatility.
• Index Funds: Investing in stock market index funds, such as Vanguard's $VOO, can provide diversification and potentially higher returns. Since 1950, the S&P 500 has had an average annualized return of 11.14%.
• Real Estate: Consider investing in real estate through platforms like Fundrise or purchasing REITs (Real Estate Investment Trusts), which are publicly traded companies that own income-producing real estate.
• Junk Bonds: These are high-yield, higher-risk bonds issued by companies with lower credit ratings. They can provide higher returns than investment-grade bonds but carry more risk.
• Peer-to-Peer Lending: Through companies like Lending Club, you can loan money to individuals and potentially earn returns above 10%.
• Art and Collectibles: Investing in art and collectibles, such as through platforms like Masterworks, can provide diversification and potentially higher returns than traditional investments.

Remember, investing always involves balancing risk and reward. Consult a financial professional to help you navigate your options and make informed decisions based on your specific circumstances.

Stock market investing

Investing in the stock market is a great way to aim for a 10% return on investment. However, it's important to remember that investing in the stock market comes with risks and there are no guarantees.

Index Funds

Index funds are a type of investment fund that tracks a stock market index such as the S&P 500. They offer a convenient way to diversify your investments across a large number of stocks, which can help to reduce risk. For example, by investing in Vanguard's $VOO ETF, you can own all the companies in the S&P 500 with a single purchase. Since 1950, the S&P 500 has had an average annualised return of 11.14%.

Individual Stocks

Individual stocks can return well over 10%, but investing in a single stock is generally riskier than investing in an index fund. Stock picking is about finding companies that are likely to outperform the market and buying their stocks. To do this successfully, you need to identify these companies early and invest before their growth takes off.

Long-Term Investing

Investing in the stock market over the long term can help you achieve a 10% return on investment. Between 1928 and 2022, the S&P 500 had an average annual return of 11.51%. However, there were also years with double-digit negative returns, so it's important to be prepared for periods of adversity.

Dividend Funds

Dividend funds can be a good way to aim for a 10% return. By reinvesting the dividends, you can increase your overall return.

Growth Funds

Growth funds invest in companies with high growth potential. While these investments are risky, they can offer exponential growth compared to the overall market.

Forex Trading

Foreign currency exchange (forex) trading is a more accessible alternative to day trading. It involves trading currency pairs, buying one currency while selling another. A successful trade is when the exchange rate moves in your favour. Forex trading is largely unregulated and can be expensive if the dealer charges high fees, so it's a risky venture.

Cryptocurrency Trading

Cryptocurrency trading can offer the potential for high returns, with some top-performing cryptocurrencies seeing returns well beyond the 10% mark. However, cryptocurrency is highly volatile and values can drop suddenly. One way to earn returns on your crypto investment is through staking, which involves locking up your crypto to make it available for network transaction fees.

Junk bonds

When considering investing in junk bonds, it is important to note that they are a high-risk option. There is a chance that the issuer may file for bankruptcy, resulting in a total loss of investment. Junk bonds are generally rated BB+ or lower by Standard & Poor's and Ba1 or lower by Moody's. These lower-rated bonds pay higher yields, and investors are rewarded for taking on greater risk.

While junk bonds offer the potential for higher returns, it is important to carefully consider the risks involved. Junk bonds have higher default rates compared to investment-grade bonds, and they may also face liquidity issues, making it difficult to sell them when needed. Additionally, the values of junk bonds can be volatile due to uncertainty surrounding the issuer's financial performance.

Real estate

• Rental Properties: Buying rental properties is a good option for individuals with DIY skills, patience to manage tenants, and time to maintain the property. While it requires substantial cash upfront for maintenance and vacancies, rental properties provide regular income, potential appreciation, and tax benefits.
• Real Estate Investment Groups (REIGs): REIGs are ideal for those with capital who want to own rental real estate without the hassle of hands-on management. REIGs pool money from multiple investors to purchase rental properties, and a management company handles the day-to-day operations.
• Flipping Properties: "Flippers" look for undervalued properties and aim to sell them quickly for a profit. This strategy requires significant experience in real estate valuation, marketing, and renovation. It can be risky, as holding costs can accumulate if the property doesn't sell as expected.
• Real Estate Investment Trusts (REITs): REITs are ideal for investors who want exposure to real estate without the complexities of direct ownership. They are traded on major exchanges, and due to their high dividends, they are a common retirement investment. REITs provide inflation protection and tend to have low correlation with stocks and bonds, offering diversification benefits.
• Online Real Estate Platforms: These platforms, also known as real estate crowdfunding, allow investors to pool their money with others to invest in large commercial or residential projects. This option provides diversification and lower minimum investment requirements, but it can be illiquid and carry higher management fees.
• Hard Money Lending: Instead of purchasing properties, you can lend money to other investors, such as property flippers or wholesalers. This option can provide annual returns of 12-15%, but it carries the risk of losing your investment if the project fails to turn a profit.

Remember that investing in real estate carries risks, and it's important to do your research and consult with professionals before making any investment decisions.

Peer-to-peer lending

Peer-to-peer (P2P) lending is a financial model that connects individuals who want to lend money directly with those who want to borrow it, cutting out traditional banks and financial institutions. P2P lending platforms facilitate these transactions, providing an environment for both parties to negotiate terms and manage repayments.

How it works

P2P lending platforms create an online marketplace where:

• Borrowers can post loan requests and provide personal and financial information.
• The platform evaluates the borrower’s creditworthiness and assigns them a risk category.
• Borrowers receive loan offers from lenders and can choose to accept one offer or combine several.
• Once a borrower accepts an offer, the platform facilitates the transfer of funds.
• Lenders earn interest on the money they lend.

Benefits

P2P lending offers several advantages:

• It can offer lower interest rates for borrowers compared to traditional banks, particularly those with good credit.
• It can yield higher returns for lenders compared to traditional savings accounts, especially when investments are diversified.
• It provides accessibility for individuals who may struggle to secure loans from banks due to strict lending criteria.
• It offers transparency, with most platforms providing clear information on loan terms, interest rates, and risks.

Risks

However, P2P lending also comes with risks:

• Borrowers may default on their loans, leading to potential losses for lenders. Default rates can exceed 10%, higher than traditional banks.
• P2P platforms typically charge fees to both borrowers and lenders, which can eat into returns.
• Unlike traditional banks, P2P lending platforms are not insured by the Federal Deposit Insurance Corporation (FDIC), increasing the risk for lenders.
• Economic downturns can lead to higher default rates, impacting lenders’ returns.

History

P2P lending emerged in the early 2000s, with the first notable platform, Zopa, launching in the UK in 2005. Initially, it primarily served individuals with poor credit histories or those consolidating debt. Over time, the market has expanded, targeting a wider audience, including consumers seeking personal loans, small business financing, and auto loans.

The global P2P lending market was valued at $5.94 billion in 2023 and is projected to reach $30.54 billion by 2032, reflecting its increasing acceptance as an alternative to traditional financing methods.

Frequently asked questions