How Much Return Should We Really Expect From the Market?
Most investors begin their journey with an optimistic question:
“Can I earn 20–25% returns every year from the market?”
While such returns are possible in certain years, planning long-term financial goals around them is unrealistic. A more useful question is:
“What is a reasonable return to expect and plan for over the long term?”
Where Do Market Returns Come From?
Over long periods, equity returns are anchored to a few fundamental drivers. They do not come from stock tips or short-term predictions, but from how the economy itself grows.
The three key building blocks are:
- Real economic growth
This reflects how fast the economy expands after adjusting for inflation.
India’s real GDP growth is expected to be around 6–7%, while developed economies grow closer to 1–2%. - Inflation
Inflation increases the nominal size of the economy but erodes purchasing power.
In India, inflation has averaged around 4–5% over the long term. - Equity risk premium
Equity investors accept volatility and periods of loss. In return, they expect a modest premium over risk-free investments. This premium exists, but it is limited, not unlimited.
In simple terms:
Long-term equity returns ≈ Economic growth + Inflation ± valuation effects
Why 20–25% Every Year Is Unrealistic
History across markets shows no consistent link between high GDP growth and permanently high equity returns. There are several reasons for this:
- Not all economic growth flows to listed companies
- High growth stories are often already priced in through valuations
- Profitability, regulation, capital efficiency, and dilution matter as much as growth
Sustained 20–25% annual returns over long periods are extremely rare and usually involve excessive risk or concentration, not diversified investing.
So What Is a Reasonable Expectation?
For India today:
- Real economic growth: ~6–7%
- Inflation: ~4–5%
- Nominal economic growth: ~10–12%
After accounting for risk and market cycles, a sensible long-term equity expectation is:
- Expect: ~10–12%
- Aim (in favourable conditions): ~12–14%
These figures are planning assumptions, not guarantees.
Returns Don’t Arrive in Straight Lines
Even if long-term averages are reasonable, actual returns are uneven:
- Some years deliver strong gains
- Some years are flat or negative
- Outcomes over 3–5 years depend heavily on entry valuations and discipline
Understanding this helps investors remain patient instead of chasing unrealistic consistency.
How Should Investors Plan?
A practical and disciplined framework is:
- Plan conservatively for long-term goals
- Aim slightly higher when markets cooperate
- Treat anything above expectations as a bonus
If you plan assuming 25% returns and the market delivers 10%, the plan fails.
If you plan assuming 10–12% and the market delivers more, the investor benefits.
The Real Advantage in Investing
Long-term wealth creation depends less on chasing high returns and more on:
- Staying invested through market cycles
- Maintaining the right asset allocation
- Managing behaviour during volatility
A disciplined investor compounding at realistic rates often outperforms someone chasing extraordinary returns.
Bottom Line
For a growing economy like India, a 10–12% long-term equity return expectation, with an aspirational 12–14% aim, is realistic, defensible, and aligned with economic reality.
This approach doesn’t cap upside—it ensures that your financial plan is built on assumptions strong enough to last.
-Sanket Daragshetti, Founder ThePairTrader