Are 10 percent returns reasonable?

Many financial advisors – both the human kind and, more especially, the robo kind – will often rely on computerized portfolio optimization programs to recommend an asset allocation for retirement investors. I’ve mentioned in the past how the fatal flaw in these calculators is their inappropriate use of risk as a factor in these recommendations. This article isn’t about risk. It’s about something else I recently discovered (for the background on this, read “How a Fiduciary Can Assess a Retirement Investor’s GOT,” FiduciaryNews.com, August 5, 2014). 

Many of these same optimizer programs use the average annual returns for various asset classes in their calculations. The most often cited average annual return for stocks (using return data dating from 1926) is 10 percent per year. How reasonable is it to use these historic returns as goals for retirement investors?