What are realistic long-term return assumptions?

Every long-term financial plan rests on an assumption about future returns. Assume too much, and the plan quietly fails; assume too little, and it demands more saving than necessary. Future returns cannot be known, but history, current valuations and interest rates give a reasonable range.

What history shows

Long-run studies of developed markets over more than a century — such as the global investment returns research of Dimson, Marsh and Staunton — give roughly these average real returns, after inflation:

Asset class	Real return per year (approx.)
Global stocks	+5
Government bonds	+1.52
Short-term cash	+0.51

These are long-term averages over periods that included wars, depressions and bouts of high inflation. Individual decades have been far better and far worse: there have been stretches of ten years and more with negative real returns on stocks.

Nominal and real

A nominal return includes inflation; a real return does not:

1 + r_{\text{nominal}} = (1 + r_{\text{real}}) \, (1 + \pi)

where $\pi$ is the inflation rate. With a 5% real return and 2% inflation, the nominal return is about 7.1%. Plans made in today's money should use real returns; plans with nominal targets should use nominal ones. Mixing the two is one of the most common planning mistakes.

From market returns to the investor's return

What matters for a plan is the return that remains after everything:

r_{\text{plan}} \approx r_{\text{market}} - \text{Costs} - \text{Tax drag}

A portfolio of 70% stocks and 30% government bonds, with the historical real returns above, would have an expected real return of about:

0.7 \times 5\% + 0.3 \times 1.75\% \approx 4.0\%

After 0.3% a year in costs, about 3.7% remains, before taxes.

Choosing assumptions for a plan

Be conservative. Many planners assume real returns of 3–5% for stocks and 0–2% for bonds — below the historical averages — to leave a margin of safety.
Consider the starting point. High valuations have historically been followed by lower returns, and bond returns depend heavily on today's interest rates.
Test lower returns. A plan that only works at 7% a year is fragile. Checking the outcome at one or two points less shows how much room for error there is.
Account for variability. Average returns are not smooth returns; a Monte Carlo simulation shows the range of possible outcomes around the average.

A worked example

Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.

What are realistic return assumptions for my plan?

Here are commonly used, realistic annual return assumptions by asset type and why they matter.

Horizon / asset	Assumed return (p.a.) (%)	Reason
Cash / short-term	+1	Low nominal return preserves liquidity
Bonds / fixed income	+3	Income with low-to-moderate upside
Broad global equities (ETFs)	+47	Long-run equity risk premium vs cash
Concentrated growth stocks	+612	Higher expected return, higher dispersion
Crypto / very high risk	-5,030	Very wide outcomes large upside and downside

What this means for your plan

Your portfolio value is 139.022,74 € and its historical annualized volatility is 18,18%. Use the ranges above to translate the volatility you see into expected long-run return scenarios (broad ETFs are toward the middle of the table; concentrated stocks and crypto toward the top/bottom).
Your portfolio’s total historical return since inception is +94,58% and your unrealized return is +92,32%; these are historical outcomes, not forecasts. Typical planning assumes lower, central values from the ranges above for projections.

Notes

These are nominal annual ranges, not guarantees. Returns you actually experience depend on horizon, sequence of returns, currency moves and fees (your recorded fees: 2.328,95 €).
If you want, I can show simple projections for a chosen assumed annual return and horizon next.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

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