I’m at work, it’s 4pm and I can feel myself falling behind on the day’s tasks. I know that the family has dinner planned, kid’s evening events that need shuttling to. My family will be expecting me home by 6pm to get the evening rolling and I know I’ll be lucky to get there by 6:30. It is at this instant that I have to decide whether to make the phone call to tell them I’ll be home late, OR do my best to work faster than I ever have to make sure I arrive just slightly after 6pm, maybe 6:15-6:20?

Well, after 21 years of marriage, I have learned that it is always better to call and help reset the expectations. I know it won’t be well received, but I call to let the family know I will likely not be home until 7pm, knowing all the while that I will likely be home by 6:30. While my news was not well received, everyone is very happy that I called. In fact, when I walked in the door at 6:25, my wife and kids were thrilled to see me … AND I got home earlier than expected!

I’m sharing this story with you because investors need to start managing their own expectations about market growth and portfolio performance over the next ten years.

I recently attended a wealth management conference in Minneapolis. There was a lot of information and I’m still digesting the majority of it; but one big takeaway from the first day was information from the Vanguard Group’s September 2021 Market Perspectives. That data contained the past ten years of market performance, as well as the Vanguard research team’s estimates for the next ten years. The past decade, although extremely volatile, had an average S&P 500 rate of return of 16.51% and a standard deviation of 13.17%. That is an extraordinary amount of return for the amount of volatility!

If we think back on the rolling ten-year period, this makes sense. From 2011 (post-Financial Crisis) to 2021, things were in the process of roaring back from an economic collapse. This wasn’t the fact from the Vanguard report that caught my eye, however. Vanguard’s research indicated that they expect market returns for the next decade, as measured by the S&P 500, to be between 2.3%-5.2% (standard deviation 16.5%). What this tells me is that investors could see up to 80% less return, and 25% more volatility over the next ten years than we saw in the decade previous.

As investors, we need to set realistic expectations of investment returns. These days, it seems like everyone has a friend or a relative talking about how much money they recently made on some crazy-risky investment. In fact, this is very much starting to feel like it did back in 1998 and early 1999; many investors got burned from 1999-2003 because they started expecting their money to double every 3-4 years. In setting that expectation, they took on much more risk than they should have, at just the wrong time. Investors who set their expectations based on Vanguard’s research will enjoy a much more satisfying experience.

Investing should not be viewed or thought of as a “get rich quick” proposition. It takes years of long-term saving, intentional spending discipline, and making unemotional decisions during times of heavy market volatility. Keeping expectations in check will help investors avoid over-extending their risk parameters and in turn, help them stay invested – through good times and bad.

I am very thankful for all the readers of MCM, and wish you and your families the happiest of Thanksgivings!





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