Psychologie a chování
Unrealistic Return Expectations: The Most Costly Investment Mistake
Key takeaways
- The historical average real return of global equities is roughly 5–7% per year after adjusting for inflation.
- Expecting 20–30% annually leads to excessive risk, strategy-hopping, and disappointment after a normal year.
- Unrealistic expectations are fuelled by exceptional years, influencers, and survivorship bias — we only hear about the winners.
- Realistic expectations lead to better planning, patience, and fewer unnecessary portfolio moves.
Unrealistic return expectations — the belief that stocks should "normally" earn 20–30% a year — are one of the most widespread and yet most costly investor mistakes. This month's investment mistake says: realistic numbers can earn you more than attractive ones.
Where unrealistic figures come from
Three things combine to produce inflated expectations:
- Exceptional years: investors start in a bull market and take a 25% gain as the normal state of affairs.
- Survivorship bias: you hear the stories of people who doubled their money in a given year. You don't hear the ones who lost.
- Social media and influencers: "I made 40% in a year" gets attention — "I earned 7% in a year" does not.
What the data say
The historical average real return of global equities (after inflation) is roughly 5–7% per year over the long horizon. In nominal terms that is approximately 8–10% annually for US equities over the past hundred years, but individual decades vary considerably. Years with a return above 20% exist — but they alternate with years of minus 30%. The long-term average is simply an average, not a floor.
How unrealistic expectations cause harm
An investor expecting 25% in a "normal" year gets 10% — and considers it a failure. They jump to a different strategy, search for a miracle product, take on excessive risk. The result: they pay unnecessary fees, overtrade, and end up trailing the plain S&P 500 index or a global ETF.
How to set realistic expectations
- Work with a conservative scenario: 5–7% real, 8–10% nominal for global equities over the long horizon.
- Plan financial goals on these numbers — a surplus will pleasantly surprise you; a shortfall won't wreck the plan.
- Use the portfolio projection tool — set up various scenarios and see what reasonable numbers mean for your goal.
- Compare your portfolio with a benchmark, not with influencer screenshots.
Realistic expectations are boring — and that is precisely why they work. An investor who expects 7% and gets 10% stays with the strategy. An investor who expects 25% and gets 10% leaves and keeps searching.
FAQ
How much do equities earn on average per year?
Historically roughly 8–10% nominally for global equities over the long horizon. In real terms (after inflation) it is 5–7%. Individual years vary widely — years of +30% and years of –30% are both part of a normal cycle.
Why is expecting 20–30% per year dangerous?
It creates a sense of failure in normal years, causes strategy-hopping, drives excessive risk-taking, and leads to searching for products with guaranteed high returns. The result is higher costs and worse actual returns.
Where can I find realistic expectations for my portfolio?
Historical data for various asset classes are publicly available. The portfolio projection tool lets you set conservative and optimistic scenarios and shows the result in concrete numbers.