An important part of your investment plan is setting realistic expectations about your investments and about market performance. In recent years, many investors have enjoyed strong returns on their investments as the stock market has achieved record results. The U.S. stock market produced atypical returns during the 1990s compared to the market's historic annual average. Experts remind investors that it is unrealistic to expect that this unprecedented record will continue or be repeated.
Successful investors base their expectations on historic average returns of the market.
If your expectations are too high, and the market reverts to its historic levels, you will fail to reach your investment goals. Remember, too, that the stock markets can move up and down sharply, sometimes in a single day. Certain segments of the markets may perform exceedingly well while others may not. Don't let an unstable market environment tempt you to assume risk beyond your tolerance or to chase short-term performance. Although the average annual return in the stock market since 1926 has been 11 percent, many individual years have seen losses.