Expected long-term equity returns for retail investors and financial advisors tend to be overly aggressive.
Long-term equity return assumptions are a critical variable in a financial plan.
Utilizing a broad range of equity return assumptions can maximize the chance of achieving financial goals.
What Equity Returns do Investors Expect?
Equity return assumptions play a critical role in financial planning and are often the determining factor between achieving financial goals or not. We have increasingly seen retail investors and financial advisors using long-term equity return assumptions that we view as too aggressive.
According to the June 2025 Natixis Individual Investor Survey, the typical retail investor believes he or she can achieve a 10.7% long-term return above inflation. Additionally, financial advisors believe they can achieve an 8.3% annual long-term return above inflation.
If we assumed the Federal Reserve achieves their 2.0% long-term inflation target, of which we are suspect, retail investors expect a 12.7% long-term nominal return and financial advisors expect a 10.3% long-term nominal return.
We believe both retail investors and financial advisors are extrapolating post-Global Financial Crisis equity performance into the future. As the chart below demonstrates, that is not always the case.
Long-term equity returns have generally grown in line with earnings growth. Over the past 25 years, the nominal return of the S&P 500 has been roughly equal to earnings growth [2].
How Impactful are Return Assumptions for a Financial Plan?
Projecting the growth of an investor’s wealth is highly dependent on return assumptions. For instance, the difference between assuming the historical long-term equity return versus retail investor and financial advisor return expectations in a 30-year wealth projection is noteworthy.
What Equity Return Assumptions Should be Used in a Financial Plan?
We utilize a broad array of equity return assumptions in our clients’ financial plans. This allows for durability of the financial plan, outlines possible outcomes that should be planned for, and sets investor expectations more appropriately.
Utilizing equity return assumptions based on factors such as valuation, earnings growth, and dividend yield is a great way to stress test portfolio resiliency. For instance, Vanguard publishes 10-year equity return expectations which clearly differs from both retail investor and financial advisor expectations [3].
An equity investor should be aware that their asset allocation will likely shift over time. While they may be an equity investor today, upon retirement the asset allocation will likely shift to include stable and income producing investments, such as fixed income. Neglecting future asset allocation shifts in a financial plan has a major impact on future projected values.
Conclusion
Retail investors and financial advisors often overestimate their equity return assumptions. Incorporating more reasonable equity return assumptions in a financial plan is critical to providing confidence in achieving one’s financial goals.
Footnotes
[1] 10-Year and 25-year S&P 500 returns are as of August 31st, 2025. The “Long-Term” return for stocks is based on annualized return from 1802-2021 per Jeremy Siegel’s Stocks for the Long Run 6th Edition.
[2] JP Morgan Guide to the Markets as of August 31st, 2025
[3] Vanguard Capital Markets Model® forecasts as of July 23rd, 2025
Disclosure
RISE Investment Management, LLC ("RISE" or "RISE Investments") is an investment adviser registered under the Investment Advisers Act of 1940. Registration of an investment adviser does not imply any level of skill or training. This publication is solely for informational purposes and past performance is not indicative of future results. Any description of products, services, and performance results of RISE contained in this publication are not an offering or a solicitation of any kind. No advice may be rendered by RISE Investments unless a client service agreement is in place. Advisory services are only offered to clients or prospective clients where RISE Investments and its representatives are properly licensed or exempt from licensure. All of the information in this publication is believed to be accurate and correct as the date set forth. RISE does not have or accept responsibility or an obligation to update such information. This article is for education purposes and should not be treated as tax or legal advice. This article is not a substitute for legal or tax advice from your professional legal or tax advisor.