Investment returns significantly affect what you can achieve in your long-term plans. Naturally, you want the highest possible returns, but research shows many investors have “unrealistic” expectations.

According to a July 2025 article in Financial Planning Today, the average UK investor expects annual investment returns of 9.2%. With 91% of investors stating they have a low or moderate risk tolerance, this expectation could lead to disappointment.

Anticipating high investment returns that aren’t realistic could be problematic for several reasons, including these two.

1. You may make decisions based on inaccurate information

If you’re making decisions and plans based on expected investment returns that are unrealistic, you may make choices that aren’t right for you. For example, on the expectation of large returns, you might decide to reduce pension contributions, and if the expected returns don’t materialise, you could face challenges when you retire.

2. You might take more investment risk

In a bid to secure the higher returns you’re seeking, you might be tempted to take more risk than is appropriate for you. While this has the potential to deliver greater returns, you also increase the likelihood of losses, which could affect both your short- and long-term finances.

What plays a role in your investment returns?

So, if 9.2% is an unrealistic expectation for an investor, what’s realistic?

Numerous factors affect the returns delivered, including some that are outside of your control. However, to give you an idea, in July 2025, an article from The Motley Fool noted that an average Stocks and Shares ISA delivered annual returns of 6.19% between 2019 and the start of 2025 – 3% less than many investors expect.

Among the factors that affect the outcome that are in your control are investment risk and time frame.

As mentioned above, typically, the greater the investment risk, the higher the potential returns. It’s important to understand your risk profile and what an appropriate level of risk is for you. Taking risks might seem exciting, but it could harm your long-term finances.

In addition, your investment time frame will play a role in returns. Markets experience peaks and troughs, and a long-term investment horizon allows market fluctuations to smooth out, increasing the likelihood of positive returns. This is why it’s often a good idea to invest with a minimum time frame of five years.

Outside of your control, factors like inflation, the availability of finance for businesses, or economic growth could affect investment performance.

Working with a financial planner can help you choose a risk profile that suits your goals and financial circumstances, and estimate realistic long-term investment returns.

A cash flow model could help you understand how investments fit into your financial plan

Even with realistic return expectations, it can be difficult to see how investments will impact your overall financial plan.

A cashflow model is a powerful tool that we can create as your financial planner. It will bring together all your assets and show how the value might change over time depending on the decisions you make and factors outside of your control.

So, when you’re reviewing investments, you might use a cashflow model to help you answer questions like:

• If my investments deliver a return of 5% until I’m 65, will I have enough for retirement?
• How could stock market volatility affect my financial plan?
• How much should I invest to reach my long-term goals?

It’s important to note that the results of a cashflow model cannot be guaranteed, but they can provide valuable insight that allows you to make informed decisions.

Please contact us

Please get in touch to talk about your investment portfolio, whether you want to understand how your current investments could fit into your long-term plan, or you’re ready to invest for the first time.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow modelling.