“Under‑promise and over‑deliver.”
We hear this all the time, but why does it matter? Whether we realize it or not, we are always setting expectations, whether it’s in relationships, in business, or in investing.
I still think back to the 2012 season for my beloved Minnesota Vikings (poor me). The Vikings were coming off a miserable 3–13 season. To make matters worse, their superstar Adrian Peterson had torn both his ACL and MCL late in 2011. Expectations for the upcoming season were rock bottom.
But reality defied expectations. Peterson returned in record time, put up an MVP season, and dragged the team to a 10–6 record and a playoff berth. Nothing spectacular… but it felt spectacular (to me at least) because expectations were so low. Surprise creates delight.
And that brings us to markets, because surprise cuts both ways.
Private Wealth Advisors
What does a Private Wealth Advisor do? We advise clients and investors. One of the most important responsibilities an advisor shoulders is to set realistic expectations.
Picture an investor who approaches an advisor and desires a 20% rate of return. The advisor produces a nice sales pitch, the client joins the firm, and the first year happens to be 2024 when the stock market was up over 20%. Both the client and advisor are happy, are they not?
I will argue that this relationship is doomed to failure from the start.
Building Trust
To build trust in a client-advisor relationship:
- Expectations must be stated early, and
- Expectations must be realistic.
This is why we produce so much content at The Bahnsen Group. We want clients to understand how we think, how we model reality, and why we anchor ourselves to history and first principles rather than current headlines. Aligning expectations goes a long way in determining the success of the relationship.
Expectations for the Stock Market
So, let’s get to the point… what are our expectations for the stock market?
A recent survey stated that U.S.-based investors are expecting long-term investment returns of 12.6%, while advisors are using a baseline of 7.1%. This is a massive disconnect between the client and advisor.
Are advisors just being pessimistic? Do they want to under-promise and over-deliver? Is there a compelling economic or statistical reason why advisors only use a baseline of 7.1%?
Perhaps all the above.
History
Since 1926, the S&P 500 has compounded at just over 10% annualized. Innovation has led to new products, new services, and more efficient means of production, which leads to rising profits for the companies that produce these goods and services. Rising profits have led to an increase in the stock market.
If the S&P 500 has compounded at over 10% per year, why are most advisors setting expectations closer to 7%?
One major reason: valuations
Source: FactSet – January 30, 2026
When valuations (as measured by P/E ratios) are high relative to history, as they are today, future returns tend to be lower. While valuations are not a market-timing mechanism (nothing is), there is an inverse relationship between the price you pay for a stock and the subsequent return.
Purchase price matters.
That said, valuations aren’t everything. Rate cuts, tax reforms like the One Big Beautiful Bill Act (OBBBA), and technological productivity gains (including AI) provide meaningful tailwinds.
Expectations for Return AND Downside
Providing a projected long-term rate of return is helpful, but telling a client “Your future expected rate of return is 7%” when the market is down 20% is not helpful.
JPMorgan notes that the stock market has an average intra-year decline of 14.2%. A $1,000,000 portfolio falling to $858,000 at some point in the year is completely normal. Volatility is the price of admission for the long-term premium that stocks offer.
Source: FactSet – January 30, 2026
Anchoring
In my experience, many investors anchor to one of two views:
- The optimist sees rate cuts, tax incentives, and technological breakthroughs and assumes a booming market.
- The pessimist sees high valuations, slowing labor markets, and rising federal debt and assumes we’re in for a major decline.
Both may be “right” for short periods of time.
But what’s fascinating is that the same data can fuel both extremes. The last three calendar years have delivered cumulative gains of more than 65%. Some assume this is the new normal and are sure the market will continue to march higher. Others see the very same performance, believe the market has gotten ahead of itself, and assume we’re due for a severe correction.
However, long-term expectations should be anchored to reality, which supports the nuance of tailwinds AND headwinds.
The Financial Plan
Setting proper return expectations isn’t only about building trust, but also about building financial plans that actually work. The assumptions you plug into a plan are incredibly important. A 7% return assumption versus 12% isn’t a small difference. It can determine whether an advisor recommends retiring at 55 or 65, or whether a plan shows assets depleting by age 80 rather than leaving a meaningful surplus.
Expectations are Everything
We don’t pretend to know what the market will do over the next month, year, or decade. The right expectation is not 20% annualized because last year was strong, but it’s also not 0% because headlines are nerve-wracking.
A reasonable long-term expectation for the stock market remains in the high single‑digits, accompanied by regular, uncomfortable, temporary declines.
Overly rosy projections can lead to frustration and performance‑chasing, while overly conservative assumptions often result in portfolios sitting in cash for far too long. Implementing a disciplined Dollar‑Cost Averaging process can help investors avoid this decision paralysis and systematically deploy cash into the market.
If you have questions on this topic or would like to further understand our methodology as to how we build investment portfolios or financial plans, please reach out – we’d love to hear from you.
Blaine Carver
Private Wealth Advisor
Trevor Cummings
PWA Group Director, Partner
