When it comes to investing, every retirement plan requires
making key assumptions. One is the rate of return you expect to
earn on your portfolio. The expected rate of return is an
important factor of any retirement plan, because it sets the
expectation for how much a portfolio will grow and what it will
ultimately be worth when a person is ready to retire. The
typical approach to determining an expected rate of return is to
look at average annual returns for some historical period. Since
1926, the stock market (represented by the S&P 500 Index) has
achieved an average return of nearly 10 percent (9.8 percent).
Many investors assume they will earn this rate of return if they
stay invested over a long period of time. The problem is that
average returns don't tell you what the range and frequency of
those returns have been. What if returns come in below average
over the next 20 years? What if the stock market returns 6
percent or 7 percent, instead of 10 percent? What are the
chances of that happening? The acco