Are
Your Expectations Realistic?
An
English proverb urges us to "Hope for the best, but prepare for the
worst."¹ This may be valuable advice when it comes to retirement planning.
Setting expectations too high can have disastrous consequences over the long
term. Here's why.
In 1999, investors
expected their portfolios to earn an average of 18.4 percent per year.² A
hypothetical $100,000 investment earning that rate of return would grow to
$541,400 after 10 years and $2,931,100 after 20 years.³ But what if the rate of
return was actually 12 percent, which is what the S&P 500 has averaged
annually since 1950?4 A hypothetical $100,000
investment earning a 12 percent return would grow to $310,600 after 10 years and
$964,600 after 20 years.5
In 2003, investor
expectations had fallen to 8.5 percent.6 At that rate,
$100,000 would grow to $226,000 after 10 years and $511,200 after 20 years.7
An investor who planned to earn 8.5 percent per year might be pleased to achieve
a return more in line with the S&P 500's historical average.
After experiencing the
double-digit returns of the late 1990s, many people may have set aside less for
retirement than they will need. If you are in this situation, call today to
learn how you can get back on track.
1) World of Quotes, 2003
2, 6) The Gallup Organization, 2003
3, 5, 7, 8) This hypothetical example is used for comparison purposes only and
does not represent any specific investment. Actual results will vary. Taxes and
investment fees are not taken into account and would reduce the overall
performance if they were included. Investments seeking to achieve higher rates
of return also involve a higher degree of risk.
4) Wiesenberger, 2004. Performance described is for the period 1/1/1950 to
12/31/2003. The average annual return for this period was 12.04 percent. Stocks
are represented by the S&P 500 Composite Index total return, which is
generally considered to be representative of the U.S. stock market. The
performance of an unmanaged index is not indicative of the performance of any
particular investment. Individuals cannot invest directly in an index. Past
performance is no guarantee of future results.
