I am seeing people posting their PnL where they have achieved great returns in last few years or even 1 year. The returns are crazy like 25%, 22% or 18%. I am not saying that it is not achievable but getting this type of return every year is challenging. Someone can get good returns in one year, 2 years but continously getting that for 5 years might not be possible. And that's why keeping the realistic return should be the priority.
PC: Pixabay.com
I have been investing from last 10 years in mutual fund. And I am getting around 14%. But if you ask me the return percentage for the next 10 years, I will be more than happy to get 12%. Anything above 10% is a great win. That's 10% is my realistic return percentage. Whatever goals I create, I create based on that percentage itself, so that I will not get any surprises at the end of the goal.
Problem is when you keep a goal amount and keep the return percentage quite high, it might seem like it is achievable in less time. But when the time comes to complete the goal, you might get the reality check and also the shortfall. So when you are creating a goal, always keep the buffer and that comes when you are lowering the return percentage. Though there are some mutual funds which shows that they have given above 15 to 20% in last 1 year. But again it is just one such incident and they cannot repeat it next year. And that's why you will see that only very few active mutual funds are able to beat the passive mutual funds.
And that's why I tend to invest and keep the return Expectation as low because that will make my goal value much more likely to reach.