I often try to gauge a client’s understanding of investing by asking, “What is your return expectation/hope for your portfolio?” Conservative investors will often want 4-6% returns. Aggressive investors may hope for higher returns (maybe 8-10%). Unfortunately, it is VERY rare to get returns in this range. Investing is all about bearing the UNCERTAINTY of returns. Although the long term average return for the US stock market is around 10%, investors almost never get a nice 10% return in a given year. Annual returns for the stock market are WILD – meaning, they fluctuate a lot around the average return. Take a look at the chart below showing US stock market returns for the last 90 years. A few things to notice:

  1. 25% of the years are negative
  2. 75% of the years are positive
  3. Only 18% of the years (16 out of 90 years) had a return between 0 – 10%.

Keep a long term perspective. Returns for any given year can vary quite a bit around our long term expectations.

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