What is a good return over the long term?

I often talk about what the maximum return is over a long period of time that can be achieved without taking excessive risks. After all, there are lots of financial products in the market for private individuals and everyone is trying to outdo each other to get investors.

If we take a step back and think about what we should reasonably expect for returns, I always come up with a figure around 7 – 8%.

If we could find a single product that could give us 7 – 8% return with small risks year after year, it should mean that all other investments really became uninteresting except to have as some spice in an investment portfolio as a lottery ticket.

Take, for example, a portfolio of dividend paying shares, what can it reasonably generate over time? The yield from the dividends can probably reach up to 4, 5 or 6%, but is it worth the price risk?

At Untie, we today produced a very interesting chart showing the return on Untie Lending’s Preference Share compared to the Swedish stock exchange that we represented with the index OMXS30.

Looking at the chart, one can almost believe that we have plotted a linear regression as the OMX curve bounces back and forth around this fixed rate of return from the Preference Shares.

Over the past 12 months, the stock market has vibrated up and down since August having climbed up over 20% in return. Everything was then erased in just one week and the stock market’s return is now at 6.11%. Anyone who has invested in an index fund that reflects the OMXS30 has thus had to endure a huge roller coaster in order to ultimately arrive at a return that is inferior to the fixed 7% generated by the Preference Shares without any stomach ulcer!

The chart from Untie can be viewed below.

Keep your money machine going with minimal exposure to the stock market

The stock market is less attractive

The US stock market continues to make new all time highs and I have continued to lessen my exposure. I have secured profits by selling stocks into the climb. I am now focusing my investment capital on alternative investments like lending to companies and individuals. I am doing this through Kreditborsen.com and I am accumulating cash.

Gold is not a good alternative in a deflationary environment

I have previously made a few investments in physical gold through Goldmoney who offers a service for this. If we would end up in a deflationary period any investments in gold or other commodities will be bad alternatives. All assets except pure cash depreciates in value in a deflationary environment. Because of this risk I have also closed my gold investments.

The risks with investments in loans

I do not recommend that you place all your investable capital in peer to peer loans. Sweden and Finland are however very good alternatives for these activities since they have a functioning government collection agency. If the economy gets worse it will obviously impact a lot of borrowers who will not be able to pay down their loans at the agreed pace. As long as creditors and loan agents have done their homework before approving loans the payment plans will be possible to extend in order to solve the situation. It is very important to use personal guarantees and other form of security when working with corporate lending.

Focus on absolute returns and compound interest

My general reasoning for investments are very similar to the writings of the sound investor Per H Börjesson.

Focus on absolute returns and compound interest over time in order to grow the investment capital exponentially. My goal is a return of 10-15% per year where loan investments are an important building block.

By using a service like Kreditbörsen (The Credit Exchange) where income is paid out to my account daily and automatically invested in new loans I receive great diversification. This is taken care of without me having to do a lot of work like having to evaluate which loans to participate in.

I recently participated in an interview at  Kreditbörsen where I spoke about our history and how the service works which you can read here.

If you save 100 each month for 30 years with a return of 10% per year and you obtain interest at least one time per month your capital will appreciate to 230,000. The chart below shows how quickly this grows in the end with the increased exponential effect.


When your capital is at 230,000 you are making almost 1,900 per month from interest.


It is never too late to start and the more capital you save the quicker the effect.