Casey Snyder and Tom Sedoric

It’s right in the title. Investor expectations are outrageous. And, no, we’re not singling anybody out in particular. We’re not upset about it. We’re just trying to reset some sights here. The expected return on investment in today’s market is out of control, and it’s time to take a good hard look at what your own expectation really is, or rather, what it ought to be. 

We’re certainly not here to curb your enthusiasm. We’re excited about market highs as much as the next investor, but, historically speaking, you cannot plan your financial future based on blips on the investment radar.

Trust us. 

Enjoy a rewarding retirement.

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We’ve Said It Before, And We’ll Say It Again

70-90% of our clients continue to tell us that they understand the message. We’ve been preaching it for quite some time, but, we’re not certain you realize just how distortedthe expected return on investment really is, which is why we keep bringing it up. 

The general rule of thumb is, create a balance sheet that strives for a 6-8% ROI over the life of your investment portfolio. In today’s environment, and for a host of reasons, 4-5% may be more appropriate. 

While you may be thinking, ‘sure, that seems completely reasonable’ on the surface, the current global expectation sits at a staggering 14.5% in a report generated by Natixis. On the other end of that is financial professionals who, all told, are predicting that the number will land closer to 5.3%, which sets the expected return on investment gap at a whopping 174%. 

174%. Let that sink in for a moment. 

To raise that bar even further and “localize” it more, in the United States, the expected ROI of an individual’s investment portfolio is at 17.5%. That’s an even more outrageous expectation than what we’re seeing on the global scale. 

Curb Your Expected Return On Investment As A Matter Of Financial Survival

Remember when you were taking driver’s ed classes and the instructor had a brake pedal in the passenger seat? We’re that instructor, and this is where we pump said brake. 

We’re not trying to burst the bubble on the feel-good vibes of other-worldly investment growth, but, we’ve got to reset the course and pay attention to the road for a moment here. 

If you’re banking on a 17.5% expected return on investment as the baseline of your financial future and you wind up with 4-5%, you’re doing yourself a serious disservice. You don’t need to be a mathematician to crunch those numbers… Planning on a double-digit ROI to bankroll the expenses you incur during retirement is not careful planning at all. In fact, it’s reckless. Your model needs to assume a lower rate of return than what you’re experiencing right now.

Don’t get us wrong, we all like the looks of double-digit growth. Who wouldn’t? We’re just saying, be careful. For every peak, there’s a valley. 

Why Are Expected Return On Investment Numbers So Skewed? 

It’s because of personal experience. Removing your personal bias from your investment strategy is going to help you realize more realistic goals and help you plan more concretely for your future

Many investors are looking at the last 10-12 years and consider that the norm. Historically, it isn’t. If you were 42 years old following the 1970s, you assumed the market would perform quite poorly and planned for that. But if you talk to a 42-year-old in 2021, those that are coming into money, this generation’s common financial expectations are far rosier, and, if we’re being honest, dangerous. It's possible that returns are consistent or exceed expectations here, but it’s not very likely, and it’s certainly not a promise. Again, setting the stage for a 17.5% appreciation of your overall investment strategy is a cause for precarious footing.

In the United States, the top five concerns that could abate continued investment returns are: 

  • Volatility and valuations
  • Tax increase
  • Slow recovery
  • Inflation 
  • Political dysfunction 

These are very real, mindful concerns and thus help you better understand that, by assuming a lower overall expected return on investment, you can identify what you really need to save more concretely. Overall, this is a safer and smarter model of saving. 

Consider financial fears that can hamper your personal investment strategy: 

  • Large, unexpected expenses such as property upkeep
  • Taxes
  • Healthcare costs that pop up as we age
  • Maintaining a certain standard of living 
  • Job security 

Set Realistic Goals, Celebrate Unexpected Victories 

Listen, we’re all investing in a long-term strategy right alongside our clients. We’re keeping our fingers crossed for roaring 20s here, just like the next investor. But, we’re here to tell you that you’d better not be depending on it. Again, if you're planning on 17.5% and you get 5% to float the entirety of your model, you're screwed. That's just the way it is.

Following a major recession, everyone always puts their arms up in the air and says, ‘WOW, I didn't see that coming…” When things get this rich and this distorted, nobody knows when the tipping point will be, and when exactly it's coming. Sometimes all it takes is a cigarette ash to burn a forest down. It's drought-like, it's fragile. Soak it up while the gettin’ is good, but be wary. That’s exactly where we’re at right now. 

Curb your enthusiasm. Everybody is hoping for a bolstered ROI, but set your expected return on investment on something you can truly work with. Bank on 5%, and if you wind up with 17.5%, we’ll pop a cork and celebrate right alongside you. Heck, we’ll bring the second bottle. 

The Sedoric Group of Steward Partners

Steward Partners Global Advisory
145 Maplewood Avenue, Suite 100
Portsmouth, NH 03801
(Office) 603-427-8870

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.

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