You can’t handle the truth
If you are like most people, you can’t handle the truth:
In one recent survey, wealthy individuals said they expect their portfolios to earn a long-run average of 8.5% annually after inflation. With bonds yielding roughly 2.5%, a typical stock-and-bond portfolio would need stocks to grow at 12.5% annually in order to hit that overall 8.5% target. Net of fees and inflation, that would require approximately doubling the 7% annual gain stocks have produced over the long term.
The Ostrich Effect
Most of us are overly optimistic about our expectations for our portfolio. Also, when the markets are down, most people are less likely to check on their portfolios:
The behavioral economist George Loewenstein and his research colleagues have shown, using data from Vanguard Group, that investors check the value of their financial assets much less frequently, on average, in down markets — a behavior the researchers call “the ostrich effect.”