In recent months, multiple banks and financial advisers have asked me if I would be interested in investing in stocks because I have some spare money. They showed me different funds that they thought would be suitable for me. Their average annual return over the past 10 years was 3-5%, and sometimes lower (before fees).

When I mentioned to one of them that I regularly hear about an annual return of 10%, the person told me that such a return would only be possible with high risk/high SRRI and would not recommend buying such funds.

Why is everyone on this site calculating an annual return of 10% or higher when in contrast it is not offered/not recommended by banks and financial advisers and where does this difference come from? Or do they just want to sell the others because it would give them more profit? Or do most people on this site and elsewhere accept a high risk and their advice is not for the average person?

  • @RonJohn What would be considered very conservative? Those offered were SRRI 3-4 if this helps. At least it was said to me that this is the main indicator for risk.
    – H. Idden
    Jul 14 '19 at 14:49
  • Now that you disclosed that you're in Europe, my comment and Bob Baerker's answer are invalid, since they presume the US market.
    – RonJohn
    Jul 14 '19 at 14:51
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    @RonJohn I am sorry. I didn't know that this would matter because I always thought that stocks are traded worldwide and not only in the country of their origin.
    – H. Idden
    Jul 14 '19 at 14:56
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    Everyone on this site is NOT calculating an annual return of 10% or more. I would suggest 5-7% after inflation is a more reasonable long-term return.
    – jamesqf
    Jul 14 '19 at 17:16
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    @H. Idden: As the answers say, the funds you're being offered seem to be very low risk, with only a fraction of their investment being in stocks.
    – jamesqf
    Jul 15 '19 at 6:08

The 10% accurately describes average growth of the long-term US stock market. It is a nice and round number. This number is also fairly useless.

  • It does not account for inflation. This may or may not matter for your purposes, although it is easier to compare financial instruments without inflation.

  • It does not account for taxes. Since taxes affect your returns you need to include them in your comparisons.

  • It is calculated over a very long term, much longer than you will likely be investing. Shorter investment terms have more volatility, therefore your estimate should be more conservative.

  • It only describes the US stock market, but most European countries have much slower growth. This shouldn't matter: a properly diversified investment has worldwide exposure.

  • The financial products you've been looking at might not be pure stocks, and might have reduced returns due to:

    • management fees
    • currency hedging
    • non-equity asset classes such as bonds
    • taxes
    • don't forget management fees
  • Main reason: You have been suggested financial products by banks and advisors. They have an interest to maximize their commissions, not to maximize your returns. They will happily recommend atrocious investments with high management fees. With such products, you are lucky to just break even after fees, inflation, and taxes.

The ultra-low interest rates you have nowadays are largely unrelated to stock market performance – debt/bonds and equity/stocks are different asset classes. However, financial products that use multiple asset classes will have lower returns. E.g. retirement-oriented products will likely avoid the volatility of stocks and may only offer 3% (though that ended some years ago – last week I saw an offer for a whopping 0.25% guaranteed growth).

The TL;DR long-term investment advice for an European is to first decide on an asset allocation depending on your personal circumstances and risk tolerance, and then select a low-cost world-wide UCITS ETF for the equity/stocks asset class, not any actively managed fund. Beyond the fund's general parameters, the choice of ETF ultimately depends on your country's taxation details, e.g. whether a reinvesting or distributing fund is more optimal and whether the fund or the broker handle taxation details for you. In some circumstances, it may be more tax-advantageous to use a (country-specific) pension plan that invests in ETFs rather than to invest directly.

  • I looked at them again and all of them include something like "maximum 40% stocks". I now also remember one of them said that I would need to sign a special paper that I am accepting high risk if I would want those with a higher stock share. So I am right with my assumption that the 10% is for stock only/mostly stock fonds and mainly for USA?
    – H. Idden
    Jul 14 '19 at 20:39
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    @H.Idden 40% stocks is a quite conservative mixture, but might be totally sensible if you're close to retirement or cannot afford large losses. The 10% number specifically only applies to the long-term US stock market, and is just a retroactive number. Everything is likely to perform worse. Non-stock assets and non-US stocks will likely reduce the returns, but will also reduce volatility. That's why it's suggested to make your portfolio more conservative as your need for the money (e.g. retirement) nears. Stocks are too risky if you are investing for less than a decade.
    – amon
    Jul 14 '19 at 20:55
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    Few people are able to see the high management fees charged upon Net Asset Value(NAV) will dwindle their investment.
    – mootmoot
    Jul 15 '19 at 9:24

Why is everyone on this site calculating an annual return of 10% or higher when in contrast it is not offered/not recommended by banks and financial advisers and where does this difference come from?

With dividends reinvested, over the past 25 years, the SPDR S&P 500 ETF (SPY) has returned an average annual return of 9% (14.6% over the past 10 years).

With dividends reinvested, over the past 20 years, the Vanguard S&P 500 ETF (VOO) has returned an average annual return of 16% (13.9% over the past 10 years).

I would not consider either of these to be high risk. If the funds that the banks are recommending to you have had an average annual return of 3-5% or lower before fees over the past 10 years then "Run Forrest, Run" !!!

You could have approached the low end of that return with a high yield money market account. You could have nearly doubled it with investment grade preferred stocks.

  • The past 10 years are a severe aberration fueled by QE. The CAGR with dividends reinvested for the 15 years from Feb 1994 to Feb 2009 are only 5.5%.
    – RonJohn
    Jul 14 '19 at 14:45
  • I looked both up and I noticed that both SRRI 5 while those offered to me where 3-4. From what I got from them, SRRI is the main indicator for risk. Might this be the reason and is there much difference to 5? Here in Europe typical saving accounts are around 0.1% or lower. Saving accounts above 1% are seldom and bound to multiple years.
    – H. Idden
    Jul 14 '19 at 14:45
  • @H.Idden ahh, Europe. This is why country tags are soooo important!!
    – RonJohn
    Jul 14 '19 at 14:49
  • @RonJohn Is there so much difference between Europe and worldwide?
    – H. Idden
    Jul 14 '19 at 14:52
  • @H.Idden Well, stocks are stocks and bonds are bonds, but each region has it's own regulatory framework, interest rate expectations, etc. It seems that SRRI is a European thing that's not used much in the US. I certainly have no experience with it.
    – RonJohn
    Jul 14 '19 at 14:57

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