3.3. Expect Base Hits, Not Home Runs

The pounds you lose the first week of a diet don't fall away at the same rate forever. Likewise, double-digit gains on investments can't continue year after year. The path to investment success is slow and steady. There are no shortcuts. When you invest, be realistic about your expectations for returns. Then, use that realistic perspective to figure out how much you have to contribute each month to achieve your financial goal in the timeframe you have. The reason? If you do your figuring using unrealistic returns, you won't have enough money when you need it. For example, if your long-term goal for college tuition is to have $250,000 in 10 years and you plan for a 14% return on your investments, your financial calculations tell you to contribute $1,595 each month. If that investment earns a more real-world 7%, however, you'd have only $178,000. To reach your goal with a realistic 7% return, you have to contribute $2,232 each month.

You may luck out with an investment that returns an impressively high number—like the 14% in the example above. You remember an experience like that, because that one great success makes you feel smart and happy. The problem is, you can come to expect such unrealistically high returns every time, even though it was a phenomenon you're unlikely to see again anytime soon. This tendency, called anchoring, can make a good return seem average and a realistic return seem poor.