By Dr. Jim Dahle, WCI Founder

One of the most important concepts for an investor to understand is that of expected returns. Expected returns are, of course, not guaranteed returns, but an investor who doesn’t have any idea of the range of possible future returns is likely to make significant errors in investing.

A common error is to save too little. For example, an investor who expects an investment to return 15% when it only returns 5% will save far too little to reach their goals. Another common error is to buy high and sell low. This occurs when an investor doesn’t realize that a risky asset class can drop 40%, 50%, or even more over a relatively short period. The investor panics and sells their investment to a more patient investor with a more realistic view of expected returns.

How to Estimate Investment Returns

How does