Realistically, you should not plan on getting more than about 10% average per year over the long term for a portfolio of diversified equity exposure and you should really plan on getting less than that to be on the safe side.

Everybody wants to have a portfolio that outperforms the market when the markets are rising and does not lose money when the markets are falling.

We have a secret for you – it’s not possible.

The simple truth: no risk, no return.

No pain, no gain.

Everybody has a high risk tolerance when their portfolio is rising, but this tolerance suddenly disappears when the portfolio starts to lose money. Psychologically, people dislike small losses far more than they enjoy substantial gains.

An investor must be willing to “hold the line,” because (to paraphrase the band Toto) gains aren’t always on time. If investors do not have a long enough time horizon, they should not allocate too much of their portfolios to risky asset classes that may require several years to rebound from fluctuations.

That said, very generally speaking, the portion of your investment portfolio invested in US Equity markets should provide you with 8-10% of annualized return over a period of 10-15 years, and you should expect volatility of about 15%.

Benchmarks for other asset classes can be used to incorporate historical returns into a weighted average rate of return for your portfolio, historically speaking. Remember the oft-repeated caveat, however: past performance is not an indication of future results.

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