last year’s bear market for both stocks and bonds did little to dampen investors’ unrealistic expectations about their future performance it’s urgently important for them to become more realistic only then can they begin planning for the retirement standard of living they can actually afford to appreciate how little last year’s losses affected investor expectations consider the 2023 natixis global survey of individual investors on average us investors’ portfolio return expectation for the next decade has fallen from a ridiculously unrealistic 175 annualized above inflation to a merely outrageous 156 that despite one of the worst years for stocks and bonds in us history with the sp 500 spx falling 207 on a total real return basis and the 10year treasury losing nearly as much at minus 202 consider what history tells us is realistic since 1793 the us stock market’s average real total return has been 61 annualized and longterm treasury bonds’ has been 40 annualized these returns courtesy of data from edward mcquarrie of the leavey school of business at santa clara university in other words the average investor believes that over the next decade he can do nearly three times better than stocks’ historical return and nearly four times better than bonds we know that’s wildly unrealistic because the vast majority of investors—90 or more—don’t even do as well as the market averages so even if stocks’ and bonds’ returns over the next decade are as good as they have been over the last 230 years the typical investor will almost certainly do worse than those assets’ historical averages yet even that is too optimistic since the stock market is extremely overvalued right now according to almost any valuation indicator with a good longterm record odds are that stocks will not even do as well over the next decade as they have historically it takes a long time to wring extreme optimism out of the market one takeaway from the natixis study is that investor optimism builds up over time which implies that it will take several years of losses for investors to become more realistic that’s a sobering prospect given that last year’s losses—severe as they were—did not even come close to doing the trick take a look at the table below which shows what investor expectations were in each year’s natixis study over the last five years notice that in 2019 investors’ expectations for their portfolios’ returns over the subsequent decade were less than what the sp 500 had actually produced over the trailing decade this year in contrast investors’ average expectation is 64 percentage points higher than the sp 500’s trailingdecade return this differential is even greater than it was last year when it stood at 57 percentage points as dave goodsell author of the natixis survey report puts it “it appears that after more than a decade of outsized returns investors have been conditioned to expect high returns” goodsell is executive director of the natixis center for investor insight what should retirees and nearretirees do when their actual returns fall short of their inflated and unrealistic expectations—as they almost certainly will perhaps the worst thing would be to pursue riskier and more aggressive strategies in the futile hope of making up for their past returns that only compounds the problem yet according to the natixis survey 38 of investors in this year’s survey indicate that “they need to invest more aggressively to make up for the ground they lost in 2022” don’t make the same mistake yourself mark hulbert is a regular contributor to marketwatch his hulbert ratings tracks investment newsletters that pay a flat fee to be audited he can be reached at markhulbertratingscom