Mind the Gap: Your Investment Return Expectations Are Unrealistic
Among today’s investors, there’s a huge misalignment between wishful thinking and evidence-based expected returns
One of my favorite investment cartoons features a financial advisor and his client huddled around a computer monitor. With a grin on his face, the advisor is saying to his client, “Now let’s see what your portfolio looks like when we factor in you winning the lottery…” While this may seem like an extreme case of wishful thinking, less extreme cases happen all the time: investors often inflate expectations for the return on their investments. We’re currently seeing a huge gap between hope and reality. I’ll talk about the downside of over-optimism and what you can do to “mind the gap” between unreasonable expectations and more realistic evidence-based expectations.
Investor Expectations
In March and April of 2021, Natixis Investment Managers, the second largest asset management company in Europe, surveyed 8,500 investors in 24 countries including 750 Americans in order to understand their views of stock markets and investing. Of particular interest, they asked investors what after-tax stock returns they anticipated next year, as well as their long-term expected annual stock returns. They also surveyed 2,700 financial…
