Chapter 3

Setting Your Return Expectations


Looking at expected returns from common investments

Seeing how returns compound over time

We invest to earn returns. In my experience as a former financial advisor and as a writer interacting with many folks, I still find it noteworthy how many people have unrealistic and inaccurate return expectations for particular investments.

Where do these silly numbers come from? There are numerous sources, most of which have a vested interest in convincing you that you can earn really high returns if you simply buy what they’re selling. Examples include newsletter writers, financial advisors, and various financial publishing outlets.

In this chapter, I reveal the actual returns you can reasonably expect from common investments. I also illustrate the power of compounding those returns over the years and decades ahead, and I show you why you won’t need superhuman returns to accomplish your personal and financial goals.

Estimating Your Investment’s Returns

When examining expected investment returns, you have to be careful because you’re largely using historic returns as a guide. Using history to predict the future, especially the near future, is dangerous. History may repeat itself, but not always in exactly the same fashion and not necessarily when you expect it to.

remember Historical returns should be used only as a guide, not viewed as ...

Get Investing in Your 20s and 30s For Dummies now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.