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Chapter 14. Betting on the Right Horse > What Investment Rate of Return Should ... - Pg. 140

Betting on the Right Horse 140 Everyone is different, so take some time to think about each question. Your answers should reflect your personality and your financial goals. Our survey is not intended to be a psychological analysis (surprised?). After all, there is more to the question of risk than can be answered in a single survey. However, the survey will help you think about which investment strategy makes the most sense for you. What Investment Rate of Return Should You Use? Now that you know what kind of investor you are, we can move on to confirming whether the target rate of return that you used way back in Chapter 5 is consistent with your investor profile. You will see what we mean in a moment. In the following table, we have listed different investment rates of return. The purpose of this chart is to make sure that you are not overly optimistic or pessimistic in your investment-return assump- tions. For example, you cannot be a conservative investor and hope to get a 10 percent return on your investments. Why? Because in order to get a 10 percent return, you will need to invest in stocks. And as a conservative investor, when (not if) the market drops 200 or 300 points, you probably will feel a strong urge to sell out. If you do that, you will have a tough time reaching your goal. This chart will keep you honest. If Your Investor Profile Is ... Conservative Moderate Moderately aggressive Aggressive Consider Using a Rate of Return Of ... 4 or 6 percent 6 or 8 percent 8 or 10 percent 10 or 12 percent