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What kind of returns should you expect from the stock markets?


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Predicting stock market returns is an inexact science, but here's what to consider:

Historical Averages:

  • Long-term (10+ years): The S&P 500, a broad market index in the US, has historically delivered an average return of around 10% per year. However, this is not guaranteed and past performance doesn't necessarily predict future results.

Adjusted for Inflation:

  • Real returns: That 10% average return needs to be adjusted for inflation. Inflation reduces your purchasing power over time. So, a 10% return with 3% inflation might only give you a 7% real return (10% - 3%).

Market Conditions:

  • Market cycles: The stock market goes through up and down cycles. You might experience high returns during bull markets and negative returns during bear markets.

Risk and Return:

  • Generally, higher risk investments offer the potential for higher returns. For example, emerging markets might offer higher potential returns than developed markets, but also carry greater risk.

Your Investment Horizon:

  • Time in the market: The longer you hold your investments, the more likely you are to weather market downturns and ride out upswings. This means potentially higher returns over the long term.

Here's a ballpark range for expectations:

  • Conservative: 6% annual return (adjusted for inflation) might be a good starting point for a long-term investor with a moderate risk tolerance.
  • Moderate: Historically, the S&P 500 average (around 10% before inflation) might be a benchmark for moderate risk tolerance.

Remember:

  • These are estimates, and actual returns can vary significantly.
  • Diversification is key: Spread your investments across different asset classes to manage risk.
  • Don't chase get-rich-quick schemes: Focus on a long-term strategy and manage your expectations.

For personalized investment advice, consulting a financial advisor is recommended. They can consider your specific goals and risk tolerance to suggest a suitable investment strategy.

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