Finding The Illusive 8% Savings Rate

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.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
The 10 Best Outdoor Home Upgrades for Your Money
The 10 Best Outdoor Home Upgrades for Your Money

There’s still time this summer to make improvements to the exterior of your home. These offer the best payback.

6 Investing Tools That Help You Diversify
6 Investing Tools That Help You Diversify

Here’s how you can lend to startup businesses, fund social causes or get in on investments once available only to the very rich.

8 Award-Winning Products That Impressed 40,000 Shoppers
8 Award-Winning Products That Impressed 40,000 Shoppers

The Product of the Year awards help shoppers find the best pet products, personal care items and everything in between.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

5 Memberships That Offer Car Insurance Discounts
5 Memberships That Offer Car Insurance Discounts

These discounts may save you hundreds — even thousands — of dollars a year.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

5 States Lowering Taxes This Year — and 2 Raising Them
5 States Lowering Taxes This Year — and 2 Raising Them

State personal income tax rates, brackets and deductions just changed in these places.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.