With investing, as with life, one of the biggest causes of upsets is when expectations don’t match reality.

According to a global investor study by Natixis Global Asset Management, many investors may be setting themselves up for disappointment.

On average, investors said they need average annual returns of 9.5% above inflation to achieve their investment goals, which translates into nominal returns “approaching 12 to 13%.” Not only do they need that level of return, but 64% of such investors believe those expectations are realistic.

At the same time, this is a very conservative group. A majority of respondents (79%) said “they’ll take safety over investment performance.”

One other finding of note was the acknowledgement by 56% of respondents that they “struggle to avoid emotional decisions when markets are volatile.”

All of this begs the question: What is a realistic expectation for average annual investment returns?

Answering that question has much to do with your time frame, your temperament, the investment strategy you choose, and importantly, your commitment to staying with that strategy.

In general, the shorter your time frame, the less you should expect. You should be reducing risk since you don’t have as much time to ride out the market’s ups and downs.

By the same token, the less risk tolerant you are, the less you should expect. You can’t “take safety over investment performance” and expect a 12% average annual return.

When it comes to factoring your investment strategy of choice into equation, I strongly encourage you to read (or re-read) two SMI articles:

Both demonstrate the risk-reducing benefits of combining two or three SMI strategies. Both also equip you to manage your expectations. For example, looking at a chart in the second article, an investor planning to retire in five years would see very compelling average 5-year return figures for each strategy combination, but also worst five-year returns ranging from -2.6% to +6%.

It isn’t that you should use the worst-case scenario as your expected average annual return, but it may be wise to let it take your expected returns down a notch or two. After all, average returns from the past are not a guarantee about the future. What if the worst-case scenario happened during your five-year stretch?

As for your willingness to stick with your strategy of choice, remember that more than half of the Natixis survey respondents acknowledged struggling with their emotions during market downturns. Assuming that future average annual returns will mirror those of the past is problematic enough. Moving in and out of the strategy will only make the problem worse.

So, what average annual return should you expect? There is not a one-size-fits-all answer to that question. It depends in large part on the factors just discussed — your time frame, your risk tolerance, your strategy (or strategies) of choice, and your willingness to stay with your chosen approach.

One suggestion that does apply to all, though, is this: It would be far better to keep your expectations relatively modest and be pleasantly surprised by a better result than the other way around.

What’s your expected average annual return and how did you arrive at that figure?