When it comes to building a long-term investment portfolio, everyone’s chasing the same thing: growth that outpaces inflation, secures financial goals, and justifies the risk taken. But what does a good return on investment (ROI) actually look like over the long haul?
The answer depends on several factors — your investment strategy, risk tolerance, time horizon, and whether you’re managing a passive or active portfolio. Still, there are some clear benchmarks and principles that can help you evaluate your portfolio’s performance realistically and effectively.
1. Benchmarking Against the Market
A strong starting point is to compare your returns to major indices:
- S&P 500: Historically returns ~7–10% annually after inflation.
- MSCI World Index: Global exposure with similar historical returns.
- 60/40 Portfolio (60% stocks, 40% bonds): Tends to yield ~6–8% annually over the long term.
If your portfolio is consistently beating these benchmarks over 10+ years (net of fees and taxes), that’s a strong sign. But even matching them, especially with lower volatility or less risk, can be considered a very solid return.
2. Understanding Risk-Adjusted Returns
Return alone isn’t everything. The Sharpe Ratio — a measure of return per unit of risk — gives a better sense of how efficiently your portfolio is working. A Sharpe Ratio above 1 is generally considered good; above 2 is excellent.
In other words, a 10% return with wild swings might not be better than an 8% return with steady growth and fewer sleepless nights.
3. Accounting for Inflation and Fees
A good long-term ROI should:
- Outpace inflation (typically ~2–3% per year).
- Cover any management fees, fund costs, or advisory charges.
- Provide real purchasing power growth.
So, a “nominal” return of 10% annually might translate to only ~6% in real terms after inflation and fees. That’s still quite strong for long-term compounding.
4. The Power of Compounding
Even a modest ROI, when consistent, yields massive impact over time. Here’s how different annual returns stack up on a $100,000 portfolio over 30 years:
- 5% annual ROI → ~$432,000
- 7% annual ROI → ~$761,000
- 10% annual ROI → ~$1.74 million
This is why long-term investors focus less on “hitting it big” and more on steady compounding with disciplined contributions.
5. Tailoring to Your Goals
Ultimately, a “good” ROI is one that helps you meet your long-term financial goals:
- Retirement income
- Education savings
- Home ownership
- Legacy planning
If your portfolio is on track to deliver those outcomes with a margin of safety, you’re likely seeing a good return — even if it doesn’t look impressive compared to crypto or day trading anecdotes.
When building a long-term investment portfolio, the focus should be on assets that offer consistent growth potential, resilience through market cycles, and compounding returns over time. Equities — particularly broad-based index funds or exchange-traded funds (ETFs) like those tracking the S&P 500 or MSCI World — are a cornerstone of most long-term portfolios. These provide instant diversification across industries and geographies while capturing the upward trajectory of global economic growth. For those with higher risk tolerance, adding a mix of large-cap growth stocks, dividend-paying companies, or even exposure to emerging markets can enhance returns, though they come with added volatility.
Beyond stocks, a well-rounded long-term portfolio often includes fixed income investments like government or high-quality corporate bonds. These provide stability and income, especially useful during market downturns. Additionally, long-term investors may consider real assets — such as real estate investment trusts (REITs) or infrastructure funds — which can offer inflation protection and steady income. For those with longer horizons and appropriate risk appetite, small allocations to alternatives like private equity, venture capital, or even crypto (with caution) can provide diversification and potential upside. Ultimately, the goal is to create a balanced mix that aligns with your time frame, risk tolerance, and financial objectives.
Chasing outsized returns often leads to excessive risk. A disciplined, diversified, and goal-aligned portfolio that delivers 6–8% annually over the long run is not just “good” — it’s excellent.
In investing, slow and steady truly does win the race.