Take a look at the performance of Apple Inc shares over a period of ten years and the potential return on investment (ROI) you could’ve earned during that period. Let’s say your initial outlay in January of 2015 was S$10,000 with a long-term investment horizon of ten years right through to January 2025.
To calculate the annual return on a ten-year investment, we’d take Apple stock’s share price on 1 January 2015 (29.316) which represents the standard deviation of the portfolio (SP) divided by the expected return of the portfolio (EP) on 20 January 2025 (137.87). Here’s the formula below:
Annual return = 100 x ([137.87/29.316] 1/10 – 1)
= 16.74 %
Therefore, over a span of ten years, your investment into Apple shares would’ve now accrued S$47,029. Remember that there’s no guarantee that the same growth rate can be sustained for the next ten years, therefore, you need to take steps to manage your risk.
In comparison, you can look at how the Vanguard S&P 500 UCITS fund performed over a 10-year stretch. Let’s say your initial outlay was S$10,000 and you invested in the S&P 500 index from 2015 through to 2024. According to our expert analysts, the average stock market return for S&P 500 was 14.8%.
For the first twelve months of your investment, your average return would amount to S$1,480 (14.8% of 10,000 = 1,480). Taking into consideration compound returns, you’d get 14.8% of your new total ($10,000 + $1,480) $11,480 to make (14.8% of $11,480) $1,699.04 in your second year.
Investors tend to hold their position for a long time as the relative risk in the ETF market lessen over time. The average returns on major index ETFs have less variance over a period of ten years or more, making it a preferred choice for people with a long-term investment horizon.
Therefore, when choosing to invest in ETFs, you should use money that you won’t need to touch for at least a couple of years to fully reap the benefits of compound returns.