What is a Good Growth Target

Written by The Dividend Guy on November 30, 2006

When we evaluate our portfolios or project our portfolio value out into the future, we need to have a proxy for what we should be achieving in terms of growth rate to get there. I have seen a lot of interpretations of what this growth rate should be.

The most common one used is to simply shoot for the average growth rate of the U.S. stock market since the early 1900’s. This value is somewhere in the neighborhood of 12%. To be more precise, the S&P 500 has provided a median return since 1926 of nearly 12 percent a year, including dividends.

In my opinion, at the end of the day it does not matter what the number you use as your proxy. It can be 12%, it can be 20%, or it can be 5%. The key is to be realistic, and to make sure that you structure your portfolio so that you at least meet the return of the market. If you are not meeting the return of the s & P 500 (or whatever market you measure yourself against) then you should simply stop and buy mutual funds. Give yourself a couple of years to test yourself, but f it is just not happening then do something to ensure that you bring that return up to Mr. Market.


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2 Comments so far

  1. ETF Guy December 3, 2006 8:28 am

    The tricky part I find is actually figuring out the average yearly returns over several years.

    Consumer-level software seem to “forget” about sales when displaying portfolio returns. They’re also pretty weak when prorating returns from holdings that have been held for less than a year.

    But maybe I’m looking at the wrong programs. Any suggestions?

  2. mark December 4, 2006 12:33 pm

    Are you also looking at the growth rate of your dividends (as opposed to growth rates of what your portfolio is worth)?

    When I first started investing for dividends I was shooting for a 25% increase in dividend payouts per year. Four years later I’m still hitting that, but as the numbers get bigger I will scale back my annual goal to be about a 14% increase per year - much of that should just come automatically from dividend increases and reinvested shares. The rest will come from continuing to buy dividend yielding stocks.

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