What’s a realistic course?

The good news is that if you try to choose your investments carefully — and subsequent chapters of this book give you the tools to do this — you should be able to minimize your losses. Ideally, your losses from any one investment may even be offset by the successes of your other investments. The emphasis should be on choosing investments carefully, which means that your expectations need to be realistic, too. Stocks have returned an average annual return of about 10% since the 1930s, so aiming for a 15% or 20% return is unrealistic. Corporate bonds returned about 6% in the same time period, so a 12% long-term average annual return from bonds isn’t realistic.
Of course, if you’re completely uncomfortable with the prospect of losing money, or if you need your money before five years, then investment vehicles such as stocks and bonds aren’t for you. You’re better off putting your money into safer, more liquid places such as bank accounts, certificates of deposits, and money market accounts.