What are realistic expectations for investment rate of return and risk?

What are realistic expectations for investment rate of return and risk?

According to this article, the average rate of return for the S&P 500 is about 7% over most 10-year periods – or longer.

For most people, the 7% is not the problem—it’s that this average rate of return comes with highs of 30% or more and lows of 30% or more.

The person who is approaching or in retirement usually cannot stomach those kinds of wild swings.  To make matters worse, many portfolios that I see are taking even greater risk than the S&P 500 Index – and getting lower rate of return.

I tackled this issue as I did my own investment research and built mathematical strategies to attempt to lower this risk.  My primary goal was to lower risk. (See below for two examples.)

Conservative Strategy

Aggressive Strategy

For me, even though my goal was to lower risk, I actually improved rate of return – in real time.


Source: TimerTrac – Reflects performance net of advisory fees.

Again, for the investor who is not prepared to take much risk or who does not have the stomach for it, a more risk-averse approach makes more sense.

I realize that it seems counter-intuitive according to conventional wisdom to say that lowering risk can lead to an improved rate of return.  However, my strategies are designed to use short-term, risk-averse indicators and invest in index funds which tend to be “out of favor”.

Question what you are being told. Take a hard look at your real rate of return and how much risk you are taking to get those returns.  Does that match your expectations with where you are in your life?

If you’d like to speak, please give me a call. I’d be happy to look over your investment performance and answer any questions you may have.