Investing in Your 20s & 30s For Dummies, 3rd Edition

Chapter 3

Setting Your Return Expectations

IN THIS CHAPTER

Looking at expected returns from common investments

Understanding the power of 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 publishers and writers, some financial advisors, and various financial publishing outlets.

Interestingly, and not surprisingly, less experienced groups of investors (for example, young investors just beginning to invest) tend to have higher and more unrealistic return expectations. In this chapter, I reveal and discuss 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 Investments’ Returns

When examining expected investment ...