What are realistic expectations for investment returns?


We all want to get as much out of our money as possible, but it’s important the expectations are realistic. Research suggests that many investors are anticipating returns far higher than what the average investment can expect to generate. It’s a miscalculation that could put plans at risk. So, how should you calculate projected returns?

The Schroders Global Investor Survey asked global investors what they would expect investments to return. It found:


  • Investors expected total annual returns, not adjusted for inflation, of 10.7% over the next five years
  • Expectations are higher when compared to the 2018 study when investors forecast returns of 9.9% a year, despite volatility with stock markets over the last 12 months
  • There is a significant difference between expectations and what global stocks have returned in the last five years. As measured by the MSCI World Index, which measures stock market performance, returns were 6.7%

The findings suggest that investors are too optimistic about the returns they can expect. If your plans rely on you achieving returns that are higher than can realistically be expected, it could leave you in a financially vulnerable position should they not materialise.

Focussing on UK investors, expectations weren’t as high but there was still a marked difference when compared to the reality. UK investors expected returns of 9.3%, in contrast, actual stock market returns between 2014 and 2019 were 5%.

Generational divide

There were significant differences between generations too. Millennials have the highest expectations. This generation expected an annual return of 11.5% over the next five years. This compares to 10.8% for Generation Z, 9% for baby boomers, and 7.8% for those aged over 71. It’s a trend that suggests as people gain investment experience their expectations align more closely with reality.

Rupert Rucker, Head of Income Solutions at Schroders, said: “The findings are startling. Investors not only have exceptionally high hopes for the total returns they will receive but they also believe they can get a level of income that almost matches that figure.

“It would seem that less experienced investors – those in their 20s and 30s – are far more optimistic than, say more experienced baby boomers. But even the typical boomer investor’s hope of 7.5% income over the next 12 months is a bold ambition. The problem is that too many investors have been conditioned to expect high levels of income that have been the norm for decades – but we’re now in an era of persistently low interest rates.”

Calculating investment returns

Of course, calculating how much investments will return is crucial, but it’s an outcome that’s influenced by numerous factors, from the level of risk you take to economic aspects that are outside of your control. As a result, it’s something that should be carefully considered when building up your investment portfolio. It’s a process that will need to consider a range of areas, including:

  • Investment time frame
  • Risk profile
  • Financial goals
  • Other assets

Working with a financial planner can help you build a portfolio that reflects your overall financial position, and offer a projection of returns based on your actual investments.

Remember, projections are just that, there’s no guarantee that your investments will meet these expectations even when they are carefully calculated. As a result, it’s important that you consider whether investing is the right option for you. Generally speaking, you shouldn’t invest if you can’t afford to lose the initial investment or if your time frame is less than five years.

Financial planning can also help you see how wealth will be affected by different investment returns. Say your investments are expected to deliver 7% annually, what would happen if they underperformed and delivered just 5% returns? Financial planning can give you confidence in the investments decisions you’re making with your personal goals in mind.

If you’d like to discuss your investment portfolio or potential opportunities, please contact us. We’ll help you see how your investment strategy can support overall financial goals with the long term in mind.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.