7% Returns and Other Myths of the Financial World

The problem is that money rarely behaves as neatly in real life as it does in a spreadsheet.

That is exactly what I discuss with Prof. Dr. Erwin W. Heri in the latest episode of derfinanzplaner. What makes the conversation interesting is not simply that some familiar financial assumptions are challenged. The more relevant question is why we are so attracted to them in the first place.

Take the famous 7% equity return. As a long-term historical average, the number may be perfectly reasonable. For an individual investor, however, it is far less meaningful than it appears. Nobody invests “on average”. People enter markets at different points in time, pay fees and taxes, experience inflation, crashes and euphoric phases, and make decisions along the way that no model can fully anticipate. Compound interest is mathematically powerful. The real challenge is staying invested for decades.

Real estate is similar. Buy a property for CHF 800,000, sell it years later for CHF 1.4 million, and the story sounds compelling. Mortgage interest, maintenance, renovations, taxes and opportunity costs tend to disappear from the narrative. That does not make property a bad investment. It simply means that returns often look better once a few inconvenient details have been filtered out.

Pension assets create the same illusion of certainty. CHF 500,000 in a pension fund may feel like CHF 500,000 sitting in a bank account. But retirement assets do not work like ordinary cash. Conversion rates, interest credits, withdrawal options, taxes and risk benefits all determine what that capital will ultimately mean for someone’s financial future. Wealth is a number. Lifestyle is a cash flow.

And then there is AI. Today, artificial intelligence can already explain financial concepts, compare strategies and model scenarios. Tomorrow, it will do all of this even better. That will change financial planning fundamentally. But it may also make clearer what financial planning is actually supposed to do. Not simply provide information. Not produce more calculations. But create context.

Because the relevant question is rarely: Which investment offers the highest return? It is more often: What return do I actually need? Not: Is property a good investment? But: What role should this property play in my overall wealth? Not: How large is my pension fund? But: What level of income can it realistically support later on?

Perhaps that is why financial planning becomes more important, not less, in a world where information is abundant.

When calculations, knowledge and market data become almost free, the value shifts. Away from calculating. Towards interpreting.

Good financial planning does not try to predict the future.

It makes sure there is still a plan when the future turns out differently.

Episode 52 of derfinanzplaner: Prof. Dr. Erwin W. Heri – “7% Returns and Everyone Gets Rich? The Myths of the Financial World”