What's The Average Returns of Stocks, Bonds, Real Estate, and Small Businesses?

As a Certified Financial Planner™️, I’m often asked,

"What is the best way to invest money for the long-term?"

While there are many options available to investors, including stocks, bonds, real estate, and small businesses, each has its own unique set of risks and rewards. In this article, I'll take a closer look at the average returns of each investment type and explore why owning your own business could actually be the most lucrative option of all.

The Average Return of Stocks S&P 500 (9%/year average)

Since its inception, the S&P 500 has delivered an average return of approximately 9% per year. (Source) While this return may seem attractive, it's important to remember that the stock market is inherently volatile, and your actual returns can be much higher or lower depending on the performance of individual stocks and the overall market conditions. Additionally, investing in stocks requires a certain level of risk tolerance and a long-term investment horizon.

The Average Return of Real Estate (7-8%/year average)

Real estate has traditionally delivered average returns of around 7-8% per year for the average residential property investments. (Source) Although this number can vary widely depending on the location, property type, and overall economic conditions. Investing in real estate typically requires a substantial upfront investment, as well as ongoing expenses for maintenance, insurance, and property management.

The Average Return of Bonds (1-3%/year average)

Bonds are often considered a more conservative investment, with average returns of around 1-3% per year. (Source) The return you earn from bonds is dependent on the interest rate offered by the issuer and the length of time you hold the bond. While bonds are generally less volatile than stocks, they can still be impacted by changes in interest rates and economic conditions.

The Average Return of Small Businesses (Dependent on YOU)

Owning your own business can provide the greatest potential return on investment when compared to traditional investments like stocks, bonds, and real estate.

It provides the potential for a high ROI as well as the ability to work with the people, places, and/or things you love.

Personally, my ideal business is one with low overhead and high potential for profits. The main factors being time (sweat equity) and willingness to continue to build the business in the face of adversity.

While the potential returns are higher than other investment options, owning a small business also carries a higher level of risk. You are the one who has full control over the success or failure of your business, so if you end up with a negative return, it’s most likely due to your own business decisions.

On the other hand, the amount of decisions you can make as a small business owner far surpasses the buy or sell decisions of the stock market, providing more opportunities to increase profitability.

The Double-Edge Sword of Owning Your Own Business

While owning your own business can provide the highest average returns, it's important to remember that it also comes with the greatest level of risk.

You are fully responsible for the success or failure of your business, and if things go wrong, you may lose your entire investment. This is the double-edge sword of owning your own business. However, if you are willing to take the risk, the potential rewards can be substantial, and the sense of pride and accomplishment you'll feel from growing your own business from the ground up is truly priceless.

Crushing the “Income Ceiling”

When investing in your own business, the potential for income growth is virtually limitless. With hard work, dedication, and smart decision making, you have the ability to grow your business and increase your income to levels that would not be possible with traditional investments such as stocks or bonds. This makes owning your own business a highly attractive investment opportunity.

Taking Advantage of Tax Deductions, Depreciation, and Debt

Being self-employed has several tax advantages.

One of the main benefits is the ability to write off certain expenses as business deductions. This can include office expenses, supplies, home office expenses, equipment, and other business-related costs. By writing off these expenses, self-employed individuals can lower their taxable income, which can result in a lower tax liability.

Another advantage is the ability to depreciate assets against income. This means that self-employed individuals can claim a tax deduction for the decline in value of certain assets, such as equipment, vehicles, or property, over time. This can also lower their taxable income and reduce their tax liability.

Owning debt under the business rather than as an individual can also provide some tax advantages. When a business takes on debt, the interest paid on the debt is tax-deductible. This can lower the business's taxable income and reduce the overall tax liability. Additionally, the debt-to-income ratio applies to the business and not to the individual, so a self-employed individual may be able to leverage their business beyond their own personal debt-to-income ratio.

Self-employed individuals can also take advantage of retirement plans, such as a SEP-IRA, to shelter taxable income. SEP-IRAs are a type of traditional IRA that allows self-employed individuals to make tax-deductible contributions to a retirement account. The contribution limit for a SEP-IRA is generally higher than for other types of retirement plans, which can allow self-employed individuals to save more for retirement and reduce their taxable income.

The Beauty of Being an Employer

Owning a successful business also provides the opportunity to be an employer and make a positive impact in the lives of others.

As your business grows, you have the potential to create jobs and provide opportunities for others in your community. Not only does this bring personal satisfaction, but it also contributes to the overall growth and success of the economy.

A successful business can also support not only the owner but also the families of employees.

By offering competitive salaries, benefits, and opportunities for advancement, you can help to improve the lives of those around you and make a lasting impact in your community.

This is one of the most rewarding aspects of owning a successful business, and a testament to the power of investing in yourself and your future.

The Importance of Investing in Your Health

Health is indeed a key component of a successful life, and this is especially true for those who own their own businesses. While having a high return on investment is certainly important, it is equally important to take care of one's physical and mental well-being in order to maintain the energy and drive necessary to make smart business decisions and reap the rewards of those decisions.

Benefits of Daily Exercise

Daily exercise is one of the best ways to invest in one's health. Regular physical activity has been shown to improve mood, reduce stress, increase energy levels, and improve overall cardiovascular health.

The Importance of a Balanced Diet

In addition, a healthy diet can also play a major role in maintaining good health. Eating a balanced diet that includes a variety of fruits, vegetables, whole grains, lean protein, and healthy fats can help to fuel the body and keep the mind sharp.

The Power of a Consistent Sleep Routine

Another important aspect of maintaining good health is sticking to a consistent sleep routine. Going to bed and waking up at the same time each day can help to regulate the body's circadian rhythm, leading to improved sleep quality and increased energy levels during the day.

Investing in ones health is just as important as investing in traditional stocks, bonds, real estate, or your business.

Taking care of one's health through daily exercise, a balanced diet, and a consistent sleep routine can not only improve one's well-being, but also increase the chances of success in one's business ventures. So, don't forget to prioritize your health as you strive for financial success.

Act On Your Vision Now and Everyday

What are you waiting for? Now is the time to start taking your financial future into your own hands and invest in yourself and your business.

Use your free time to build your vision and turn your dreams into a reality.

Rather than letting distractions like Netflix and Social Medias consume your time, use that time to build your future.

Take the first step today and figure out your vision. Write it down, make a plan with variable time horizons, and take action every day to make your vision a reality.

Owning your own business can be a challenging, but also a rewarding journey. It requires hard work, dedication, and smart decision making. But, with the potential for unlimited income growth, the opportunity to create jobs, and the ability to make a positive impact in your community, the rewards of business ownership are well worth the effort.

So, invest in yourself, invest in your future, and take control of your financial destiny. With determination and a clear vision, you can achieve great things and reach new heights in your personal and professional life.

Teamwork Makes The Dreamwork

As a CERTIFIED FINANCIAL PLANNER™️ with a fiduciary duty, I am here to help you understand the reality and opportunity of business ownership. I can help guide you through the process, provide valuable insights and strategies, and help you achieve your financial and business goals. So, don't hesitate to connect!

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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Investors cannot invest directly in indexes.

The views depicted in this material are for information purposes only and are not necessarily those of Cetera Investment Services LLC. They should not be considered specific advice or recommendations for any individual. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

Cetera Investors is a marketing name of Cetera Investment Services. Securities and insurance offered through Cetera Investment Services LLC, member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC. 10194 Crosspoint Blvd. Suite 100, Indianapolis, IN 46256