Expected return and volatility

What an investment is expected to earn on average, and how widely the actual result can swing around that. Every future a plan draws starts from these two numbers for each asset class.

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Two numbers per asset class

Market pricing turns a future nobody can see into a price today. Prices carry the information the market holds.1 What a price cannot carry is the next ten years' return. The engine assumes one, with a width.

Each asset class gets an expected return and a volatility. The return sets where the middle of the range drifts. The volatility sets how fast the range widens. Markowitz made the pair the unit of portfolio choice in 1952.2

As modelled: each asset class's expected return and volatility, a year, before fees, in Australian dollars.
Asset classExpected returnVolatility
AU equities7.0%15%
International equities7.5%16%
Fixed income4.8%5%
Cash3.5%1%
Property provisional6.5%11%

Where the numbers come from

Each figure is set against four managers' published ten-year assumptions and placed inside their spread, with every source read from a cited page.3 The engine holds them as ten-year, nominal, geometric, in Australian dollars, before fees.

History is a better witness on risk than on return. A century of markets shows how wide the outcomes ran, and how much the average depended on where and when you stood.4 The engine weights each piece of evidence by what it can support.

What it rests on, and what rests on it

It rests on

Rests on it

Related

Beside it, inside Market pricing

Where it is used

No article names it yet.

In the model

  • The model's assumption “AU equities expected return”
  • The model's assumption “AU equities volatility”
  • The model's assumption “International equities expected return”
  • The model's assumption “International equities volatility”
  • The model's assumption “Fixed income expected return”
  • The model's assumption “Fixed income volatility”
  • The model's assumption “Cash expected return”
  • The model's assumption “Cash volatility”
  • The model's assumption “Property expected return”
  • The model's assumption “Property volatility”
  • The model's assumption “Correlation matrix (becomes Calm-state base under M-013)”

Sources

  1. Eugene F. Fama, The Journal of Finance 25(2), 383-417, Efficient Capital Markets: A Review of Theory and Empirical Work, 1970.
  2. Harry Markowitz, The Journal of Finance 7(1), 77-91, Portfolio Selection, 1952.
  3. docs/cma-provenance.md, Vitrion CMA Provenance Pack v1, 2026.
  4. Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns, 2002.