Finding The Illusive 8% Savings Rate

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

This Free Software Brings Old Laptops Back to LifeMore

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

21 Restaurants Offering Free Food Right NowSaving Money

7 Dumb and Costly Moves Homebuyers MakeBorrow

House Hunters: Beware of These 6 Mortgage MistakesBorrow

Beware These 12 Common Money MistakesCredit & Debt

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Where to Sell Your Stuff for Top DollarAround The House

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

The True Cost of Bad CreditCredit & Debt

17 Ways to Have More Fun for Less MoneySave

14 Ways to Maximize Your Social Security ChecksGrow

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

10 Companies With the Best 401(k) PlansGrow

8 Ways to Take Control of Your Finances — and Be HappierGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

14 Super Smart Ways to Save on TravelSave

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

The Rich Prefer Modest Cars — Should You Join Them?Cars

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

6 Healthful Treats for Your DogFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

7 Free Sources of Manufacturer Coupons You Can Find OnlineSave

Ask Stacy: How Do I Start Over?Credit & Debt

8 Ways to Get a Good Price on a Shiny New AutoCars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Fixing Your Credit? Do These 5 Things, Avoid These 3Credit & Debt

Viewer question: Stacy, I enjoy your tips, sometimes, but--really where have you been getting the 8% you are always mentioning where to stash the savings from manicure & dinner out?????

Stacy, I enjoy your tips, sometimes, but–really where have you been getting the 8% you are always mentioning where to stash the savings from manicure & dinner out?????

I get this question often…in fact, over the 20 years I’ve been doing news and using this sample return in my news stories when discussing long-term savings, I must have gotten it 50 times. And I certainly understand why you’d ask…after all, these days earning 3 or 4% on insured savings is no easy task, much less 8%.

But if all you ever invest in is bank savings accounts…especially for your long-term savings (money you don’t need and can set aside for 5 years of more)…then you’re making a mistake. Over the last century or so, the stock market has returned closer to 10% per year: that’s why so many people go to so much hassle and endure the kind of markets we’re facing these days. I probably don’t have to tell you that the market won’t be doing anything like 10% this year: we’d be exceedingly lucky at this point to break even. But take it from someone who’s been doing this a long time: when it’s good, the stock market can be very good indeed. So here’s a rule of thumb you should consider: subtract your age from 100, then invest that amount in stocks. So if you’re 25 years old, the percentage of your long-term savings (notice I said “long-term”) that you should consider putting in stocks is 75%. If you’re 75 years old, 25%. Again, this is a rule of thumb and you should never do anything that makes you lose sleep. But since you asked where in the world I got 8%, now you know.

And so as not to sound vague when I say to invest in “the stock market” here’s what I’m talking about: an index fund, like the Vanguard S&P 500 Index fund, for example. Since its inception on September 1st, 1976, it’s average annual return has been 10.96%. (Note, however, that over the last five years it’s only averaged 5% per year…and this year, it’s down 24%! Now you see why stocks only make sense for long-term investing, and only for those who can handle the ups and downs.)

A couple more points: first, real estate can also return 8% or more. Depending on what part of the country you’re living in, this may also seem like a joke at present. But over time, that’s not at all unrealistic. When I graduated from college, my parents gave me a used Toyota. I sold it within a week and used the money as a down-payment on my first rental house: it costs $17,000. Years later I sold it for 31,000. Since then I’ve been investing off and on in real estate and I can absolutely guarantee you that I’ve earned far in excess of 8% on my money. Although there were times…the mid-80s and now come to mind…when real estate was horrible and I wished I’d never gone there.

(Btw, in case you’re wondering what I drove when I sold my Toyota to buy a house: I went to my credit union, borrowed a few grand and bought a classic car: a 1958 Triumph TR3. I drove that car for two years, then sold it for 2 thousand dollars more than I paid for it. That was in 1978, and to this day that’s still the only car I’ve ever borrowed money to buy.)

And here’s a final point: interest rates on savings have been so low for so long that many people…especially those under 35…have forgotten they can go also go higher…much higher. When I became a stock broker back in the early 80s, money market accounts were paying 17% and zero-risk T-bills were paying 15%. Heck, you could even get AAA-rated tax-free bonds that paid 13%. So just because savings rates suck nowadays doesn’t mean they can’t go up over the long term. What could make interest rates rise? Well, let’s see…if inflation goes up…say because food and fuel prices soar…that could do it. Or if the government prints money…say to finance a war or bail out banks…that could also do the trick. Remember: you heard it here first.

So there’s a long answer to your short question. Where can you earn 8%? Lots of places if you’re willing to take a measured amount of risk. And sometimes even with no risk…just not at this point. Stay tuned.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: 5 Easy Ways to Save on Your Cell Phone Bill

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,041 more deals!