Pearl Financial

When I create long-term investment scenarios, I often use a 10% nominal return assumption. Here’s the rationale behind that choice:

1️⃣ Historical Market Returns
Over the past century, the average nominal return of the U.S. stock market has been around 10% per year. This is before accounting for inflation. Adjusting for inflation, the real return has typically been around 7–8%. But for simplicity and consistency, I use the nominal figure.

2️⃣ Why Nominal Instead of Real Returns?
Because inflation affects more than just investment returns—it also influences wages and contribution levels. For example, if someone invests $500/month today, that amount will likely grow over time as their income increases with inflation and career progress. Using a nominal return helps reflect this more naturally in long-term scenarios.

3️⃣ Wage Growth and Contributions
Wages generally rise over time due to a combination of inflation, job changes, promotions, and skill development. This means many people will increase their investment contributions as they earn more. If I used a 7% real return instead, I’d also need to model increasing contributions, which complicates things in a simple illustration. Keeping the return at 10% while holding contributions steady offers a practical way to show potential outcomes.

4️⃣ About Predicting Returns
It’s true that past returns don’t guarantee future results—especially for individual stocks. But for diversified investments like index funds that represent the whole economy, long-term historical returns are a reasonable reference point. The equity risk premium (the additional return investors expect for holding stocks over safer assets) has been relatively stable over long periods.

The goal of these scenarios isn’t to predict exact outcomes, but to illustrate what’s realistically possible with long-term, consistent investing. While no one can guarantee specific results, history shows that long-term investing has been a reliable path to building wealth.

📸 -MattTheMoneyGuy

We had an incredible experience visiting the New York Stock Exchange! 🏦✨

It was amazing to witness the hustle and bustle of the trading floor up close.

The highlight of the trip was being apart of the closing bell ceremony. 🎉🔔

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📈 Short Term vs. Long Term Investing: Embracing the Volatility! 🚀

Let's explore the world of investing! 💰

When someone enters the stock market, they'll initially experience short-term thrills, but over time, the journey leads to long-term stability.

Short-term investing can be a thrilling rollercoaster, akin to chasing the market's wild swings, which might leave you feeling a bit disoriented. 😵

Now, long-term investing is all about embracing market fluctuations, exercising patience, and steering toward a smoother path to success.

So, let's not fret over short-term market fluctuations. They're unpredictable and a natural part of the investing journey. Instead, focus on the near certainty over the next few decades. 📆💡

Welcome market drops with open arms; they represent opportunities to secure more shares at a discount.

Stay the course and invest for long-term success. That's the key to optimal investing. 🎯🚀💸