Are investors overly optimistic?

Investors expecting returns of 17.5% after inflation in the coming years? Wow.

In a recent survey of 750 U.S. individual investors, Natixis Investment Managers found these people expect to earn 17.3% this year, after inflation.

That might not sound like pie in the sky. The S&P 500 returned 18.4% last year, counting dividends, and is up 15.9% so far in 2021. Recent past returns always mold future expectations.

Over the long run, however, the people in the Natixis survey anticipate earning an average of 17.5% annually, after inflation—even higher than for this year. That’s up from the 10.9% long-term return they expected in 2019, the previous round of the survey.

Wall Street Journal

If you think you’re going to get that type of consistent returns over the years I’d like a little of what you’ve been smoking. Having expectations of such huge returns is going to set up a lot of individual investors for a big reality check.

WRDS counted 3,790 stocks and ETFs that traded continuously over the 10 years that ended May 31, 2021. Only 14% earned total returns that exceeded 17.5% annually. Fully 22% earned negative returns.

In short, investors were more likely to lose money than to compound it by at least 17.5% a year.

Wall Street Journal

Sure you could be a talented gambler and pick some big winners. But those people are few and far between.