What Is a Good Return on Investment?
A good return on investment depends on what you're investing in, how long you have, and whether you can sleep at night when markets drop 20%. But as a rule of thumb: if you're investing in stocks over 10+ years, aim for 7–10% annually. For bonds, 4–7%. For cash, 3–5%. These are long-term historical averages, not guarantees—and they only happen if you actually stay invested through the inevitable downturns.
The real question isn't "what's the highest return I can possibly get?" but "what return can I realistically achieve, stick with without panicking, and actually use to build wealth?" This guide covers what actually matters, backed by numbers and examples you can replicate.
What Makes a "Good" Return on Investment?
There's no universal answer. A 5% return on savings feels amazing if you've been earning 0.5% in a cash account. A 10% return on stocks feels disappointing if you expected 15%. Context matters—both your personal situation and what's happening in the economy.
Here's a framework:
Inflation-beating returns. The UK inflation rate (CPI) averages around 2–3% historically. If your investments return less than that, you're slowly losing purchasing power. A cash ISA earning 4% sounds good, but after inflation it's really only 1–2% in "real" terms. That's why experts distinguish between nominal returns (what your statement says) and real returns (what your money can actually buy).
Time horizon. If you're investing for 10+ years, you can tolerate riskier assets (like stocks) that might drop 30% in a bad year, because you have time to recover. If you need the money in 3 years, you want something stable (bonds, cash). Different time horizons mean different "good" returns.
Your benchmark. Beat the average for your asset class. If you're in a UK equity fund and the FTSE 100 returned 8% that year, but your fund returned 6%, you've lagged the market. Conversely, if you're in a global equity fund and it returned 9% while the S&P 500 returned 10%, that's respectable—different holdings, different results.
After taxes. A 10% gross return might become 7–8% after taxes, unless you're investing in a tax-free wrapper like an ISA. This is why tax-efficient investing matters so much in the UK.
The Power of Compounding in Good ROI
Let's talk about the real engine behind long-term wealth: time plus compound growth.
Compound interest is famously called the eighth wonder of the world. By Einstein, allegedly. We've never been able to verify the quote. But the maths? Bulletproof:
- £200/month at 7% for 30 years = £243,000 (you contributed £72,000; the rest is growth)
- £200/month at 7% for 20 years = £98,000 (you contributed £48,000)
- £400/month at 7% for 10 years = £66,000 (you contributed £48,000)
The person who invested half as much per month but started 10 years earlier ends up with £145,000 more. Time in the market genuinely beats timing the market—not because it's convenient to say, but because of how exponential growth works mathematically.
The last 5 years of that 30-year journey generate more wealth than the first 15. That's not hyperbole; it's a structural feature of compounding. It's why starting at 25 is so much more powerful than starting at 35—even if you can only afford £100/month.
Use our compound interest calculator to model what your own monthly contributions will grow to over different timescales. You can see exactly how much an extra £50/month changes the outcome.
Understanding Risk and Return
Every investment involves a trade-off: more potential growth usually means more volatility along the way.
| Asset class | Typical annual return | Risk level | Best for |
|---|---|---|---|
| Cash savings | 3–5% | Very low | Emergency fund, money needed in <2 years |
| Government bonds | 4–5% | Low | Capital preservation, steady income |
| Corporate bonds | 5–7% | Medium | Income-focused portfolios |
| Global equities | 7–10% | Higher | Long-term growth (10+ years) |
| Property | 5–8% | Medium-high | Diversification, rental income |
Those equity returns—7–10%—assume you're invested across the whole market, not picking individual stocks. In any single year, the stock market can drop 20–40% (2008, 2020) or leap 20–30%. The SEC's investor guidance on risk and return explains why: equities are a long game. You need the ability to sit through the bad years to benefit from the good ones.
Understanding your risk tolerance is crucial here. Some people sleep fine through market crashes; others panic and sell at the worst time. Neither is wrong, but it changes your investment mix. A younger person with decades to go can afford 90% stocks. Someone 5 years from retirement might want 50% stocks, 50% bonds.
Diversification reduces risk without cutting your expected return. A portfolio split across UK equities, international equities, bonds, and property has historically delivered smoother returns than betting everything on one asset class. You'll have years where stocks boom and bonds lag—but you won't have years where your entire portfolio crashes.
Learn how to rebalance your portfolio to maintain your target risk mix over time. Explore how property compares to stocks if you're deciding between asset classes.
Real Returns: Why Inflation Matters
Here's the trap: you can make a great nominal return and still lose money in real terms.
Imagine you have £100,000 in a savings account earning 4% annually. Your statement says you gained £4,000 in year one—wonderful. But if inflation was 3% that year, your purchasing power only grew 1%. You're wealthier on paper, poorer in reality.
This is why real return (nominal return minus inflation) is the number that actually matters for building wealth. A 7% return on equities minus 2% inflation = 5% real return. That's what's genuinely making you richer.
Over the very long term:
- Cash has delivered roughly 1–2% real returns (interest rate minus inflation)
- Bonds have delivered roughly 2–3% real returns
- Equities have delivered roughly 5–7% real returns
Stocks win over the long run primarily because they keep pace with—and exceed—inflation. A cash savings account that earns 4% sounds safe, but if inflation rises to 5%, you're going backwards. The Office for National Statistics publishes inflation data so you can track actual CPI; calculate your real return here to see what your investments are actually worth in today's money.
Tax-Efficient Investing
Where you hold your investments can matter as much as what you invest in. Tax can eat 20–45% of your returns if you're not careful.
ISAs (UK). The £20,000 annual ISA allowance lets you invest in stocks, bonds, or cash with zero tax on growth or income. If you're not maxing your ISA before you invest elsewhere, you're voluntarily giving money to HMRC. A single person earning £35,000–£50,000 should almost always prioritise an ISA.
Pensions (UK). Tax relief on contributions (20% basic rate, up to 45% for high earners), money grows tax-free, and you get 25% tax-free at retirement. The catch: you can't touch it until age 57 (rising to 58 in 2028). For long-term wealth, a pension is unbeatable on tax grounds alone.
Investment platforms. Not all platforms are equally tax-efficient. Some charge more in fees, which eats into returns. Compare investment platforms by total cost, not just headline rates. Read how to understand fund factsheets so you know what you're paying.
For long-term investors, the difference between a tax-efficient approach and a tax-naive approach can be £50,000–£100,000+ over 30 years, even on the same underlying investments.
Small Steps, Big Outcomes
The best time to start investing was 20 years ago. The second best time is today.
Even small amounts compound significantly over decades. Start investing with just £100 per month—you don't need to wait until you have a lump sum. Regular contributions remove the pressure to time the market perfectly. Dollar-cost averaging is actually one of the smartest ways to invest, because it spreads your entries across different market conditions.
If you're planning for retirement specifically, model different savings rates to see what your current trajectory looks like—and what happens if you increase contributions by even £50 a month. The difference is often surprising.
Frequently Asked Questions
Q: What's a good ROI for stocks?
A: Historically, the UK stock market has returned 7–10% per year over the long term (20+ years). But that's an average—some years it's 30%, other years it's −20%. If you're investing for 10+ years and can tolerate volatility, 7–10% is a reasonable baseline. Over shorter periods (1–5 years), don't count on it.
Q: Is 5% return on savings good?
A: In nominal terms, yes—that's above the UK average savings rate. In real terms (after inflation), probably not. If inflation is 2%, you're only making 3% in "real" returns. That's why many investors move beyond savings accounts into diversified investments once they have an emergency fund.
Q: How much return do I actually need to retire?
A: There's no fixed number—it depends on your spending, your age, and your time horizon. A rough rule: if you can generate 4% per year from your investments without running out of money, you can retire on whatever pot creates that 4%. Model your own situation using a retirement calculator.
Q: Is property a good investment for ROI?
A: Property historically returns 5–8% per year (capital appreciation + rental income), but it's illiquid (can't sell quickly), needs maintenance, and often requires a large upfront investment. Property compares differently to stocks depending on your situation and time horizon. Most advisors suggest a mix, not all one or the other.
Q: Should I chase the highest-returning fund?
A: No. A fund that returned 20% last year might return 2% next year. What matters is consistent, market-beating performance over 10+ years, plus low fees. Read a fund factsheet properly to understand what you're actually buying and what it costs.
Q: How do I know if I'm earning a "good" return?
A: Compare yourself to your benchmark—the relevant stock index or bond index—not to headlines about someone else's portfolio. If you're in a global equity fund and global equities returned 8% that year, 8% is decent. If you're in a UK equity fund and UK equities returned 10%, aim for at least 9.5% (costs money). Beat your benchmark, and you're winning.
Q: What about inflation—does it really matter?
A: Yes. A 10% nominal return with 4% inflation is really only 6% real return. Over 30 years, inflation compounds too. A 3% annual inflation rate means your money's purchasing power halves in roughly 23 years. This is why equities (which historically outpace inflation) matter for long-term investing.
Q: Should I invest a lump sum or drip-feed contributions?
A: Statistically, lump-sum investing (all in at once) has beaten regular monthly contributions about 70% of the time over long periods. But humans aren't robots—most people stick with investing more consistently if they do it monthly. Consistency beats perfection every time.