Still shooting for moon

What is it about individual investors who keep insisting that they can generate annual returns of 12 or 13 percent - safely - at a time when a 2-year CD barely gets you 1.5 percent? Well, history. Since 1926, U.S. stocks have earned an annual average of almost 10 percent, according to Ibbotson Associates, and it appears as if some investors refuse to believe it is any different now (despite the drubbings they've probably taken these last two years). Columnist Jason Zweig asks, "What are we smoking, and when will we stop?"

If your financial planner says he can earn you 6% annually, net-net-net [after inflation, fees and taxes], tell him you'll take it, right now, upfront. In fact, tell him you'll take 5% and he can keep the difference. In exchange, you will sell him your entire portfolio at its current market value. You've just offered him the functional equivalent of what Wall Street calls a total-return swap. Unless he's a fool or a crook, he probably will decline your offer. If he's honest, he should admit that he can't get sufficient returns to honor the swap. So make him explain what rate he would be willing to pay if he actually had to execute a total return swap with you. That's the number you both should use to estimate the returns on your portfolio.