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Tempering Expectations

Financial Planning Insights Investing Behavioral Finance Retirement Planning

The S&P 500, which roughly represents the largest 500 public companies in the US, has hit a record high 53 times this year as of August 30th.  

Due to the strong recovery of the stock market from the dark days of March last year, investors expectations have greatly changed.  In a recent survey of 750 U.S. individual investors, Natixis Investment Managers found these people expect to earn 17.3% this year, after inflation.   

For context, the S&P 500’s average annual return is about 10% dating back to the 1920s.  And that is only for the S&P 500, a portfolio consisting of 60% stocks and 40% bonds has averaged 8.7% per year from 1926 to 2019, before inflation!

Expecting 17% returns on your investment portfolio can be a dangerous proposition, in fact having any short-term expectation of your investments can be tumultuous.  The average decline in any given year is about 13%!

The best way to temper expectations of your investments is to have a well-diversified portfolio with an acceptable amount of risk and a disciplined rebalancing strategy, which I discussed the on the last episode of Minds Over Money.

Another way to manage your expectations for your investments is to honestly understand what the goals are for your life savings.  For most people the goal is simple, they don’t want to outlive their savings, and they want to continue enjoying their lifestyle in retirement.  

If you and your life savings are being ignored or feeling taken advantage of, come join our family.  We are a family-owned financial planning and investment advisory firm who promise to treat you like family.  No products.  No hard sell.  No gimmicks.  Just honest advice based on four decades of experience.