What are reasonable investment goals?

Why invest?

Most people would say that the goal of investing is money, such as a net worth of $100 million or an annualized return of XX%. But money is ultimately just a tool, not a goal for people. Thinking seriously about the following two questions can help to clarify your positioning:

What are your personal desires? How much money do you need to achieve them? (It's even better to think deeper and ask why you need to think about the above questions)

Everyone has different interests and hobbies, and the amount of money they need also varies greatly, which also leads to different risk preferences. My personal answer is a life that allows me to freely allocate my time and satisfy my curiosity. Pursuing top 0.001% social status, luxury consumption, etc., should have higher return and risk preferences.

What is the underlying goal of investment returns?

Everyone is talking about financial freedom. Is it a reasonable goal to pursue a net worth of $100 million and an XX% return? First of all, net worth and return are standards for measuring currency. Why do we need to use currency to measure? The answer to this question is purchasing power. The underlying need of human beings is the intake (protein) and consumption (energy) of hydrocarbons, and purchasing power for hydrocarbons is a reasonable standard for judging whether an individual has achieved financial freedom. The essence of investment goals is to improve the purchasing power of hydrocarbons.

What currency is best suited to measure purchasing power?

Currently, the answer is the US dollar. As the currency with the largest trading volume in the world, a larger trading volume represents more accurate value discovery (pricing purchasing power). It also means that the inflation index (CPI) measured in US dollars has better reference value. It should be noted that the US CPI cannot represent the CPI of overseas markets. The currency used to measure purchasing power is not constant. Assuming that in the future, more transactions are conducted using ETH as the medium of exchange, ETH may become a new standard for measuring purchasing power.

What return on investment should I expect?

Profit and risk are two sides of the same coin. Only with a correct understanding of the return on the market can reasonable expectations be made for the goal.

First, let's take a look at Buffett's long-term investment returns. Buffett's Return & CAGR The table shows the rate of return of Berkshire Hathaway's investment records. Prior to this, Buffett's estimated return was superior to the data in the table.

It can be seen that Warren Buffett, achieved a return of over 2300 times during his 56-year career in public investment, with a compound annual growth rate (CAGR) of only 14.84%. If we narrow the time frame to before 2000, Buffett achieved a higher CAGR of 20.01%. It can be said that the large scale of investment has affected Buffett's level of return. Let's take a look at the situation of top VC/PE.

The following image is from Sequoia Fund, a top-tier primary market fund:

Investing $10,000 in 1970 and achieving a return of 620 times by 2023, resulting in a CAGR of 12.89% over 53 years. As a top-tier primary market fund, Sequoia Fund has not even outperformed the S&P 500 in the past decade. It is worth noting that many high-quality companies seek financing under the brand of Sequoia, and they have more access to outstanding investment opportunities than other VC/PE institutions.

Even top-tier institutions in the primary and secondary markets find it difficult to achieve a CAGR of 20% in the long term. As individual investors, what entitles us to expect more?

What is a suitable investment goal for individuals?

Considering that top institutions are limited by their management scale, many illiquid assets are not suitable as their positions, which may affect their rate of return. Individuals and small institutions with smaller amounts of capital enjoy liquidity advantages and can profit from low to high attention. At present, the investment goal for individuals can be set as achieving a long-term rate of return in USD that is 15%-20% higher than CPI, which is a relatively reasonable and highly challenging goal.