Dear Liz: Why do you keep saying retirement accounts will earn an average annual return of 8%? We haven’t seen returns like that in years, and there’s no chance we will in the future.
Answer: No one knows what the future will bring. But we’ve been through tumultuous times in the stock market many times in the past. Between the mid-1960s and early 1980s, for example, the Dow Jones industrial average benchmark of stock prices pretty much went nowhere, pinging back and forth between about 600 and 1,000. (Just do a Web search for “Dow Jones history” and you’ll turn up charts that show this.) People were pretty disgusted with stock market returns, and many were pessimistic about the future of our economy. Through the rest of the 1980s and ’90s, though, stock market returns exploded.
In every 30-year period since 1928, stocks have had an average annual return of at least 8%. Those who hung on through bad times were eventually rewarded for ignoring the doom-and-gloomers.