What's a “Good Investment?”

The average long-term annual return of a balanced three-fund portfolio is about 7%. Since I can reasonably expect to realize that, I use 7% as my definition of a “good investment.”

A CD yielding 1.25% interest, for example, isn't a good long-term investment. It may be better than your checking account, but it's peanuts compared to index funds.

This means that, for example, paying off your 2% student loans or 3% mortgage early also usually isn't a good investment. That money could be returning 7% on the market, and instead it's returning 2% or 3% by paying off debt.

This also means, in particular, that depreciating assets like new cars or nice furniture are especially bad investments (and, I'd argue, aren't really “investments” at all, since they don't produce any return).

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