A starting point for making that assessment is to review the equity risk premium. Since stocks are generally considered more volatile than bonds, investors typically expect a higher return. This excess return is called the equity risk premium. Although there are many complicated methods to calculate this premium, a simplified approach calculates the difference between total returns for large-company stocks and long-term government bonds.

For the period from 1926 to 2006, that difference was 4.5%.* However, the annual equity risk premium fluctuated significantly during this period. For the near future, is this a reasonable expectation? It may not be for a couple of reasons. First, even though price/earnings (P/E) ratios have declined, they still remain at high levels. Since corporate profits are not expected to increase as rapidly in the future, P/E ratios may not return to previous levels. Second, a significant portion of the equity risk premium results from dividends, which are at low levels. Third, investors can develop a preference for one asset class over another, which can drastically change the premium.

If the equity risk premium does decrease in the future, total returns will be lower than historical averages. Only time will tell if this will happen. However, it may be prudent to consider a lower return for investment programs than historical returns would suggest. To compensate for potentially lower returns, consider the following strategies:

• Take a fresh look at your financial goals. Reevaluate your goals, how much you need to reach them, and how much you should be saving annually considering lower expected returns.

• Save more of your income. If you can't count on returns to provide growth in your portfolio, you should compensate by saving more of your income.

• Invest in a tax-efficient manner. Taxes are often a significant investment expense, so using strategies to defer the payment of taxes can make a substantial difference in your portfolio's ultimate size. Utilize tax-deferred investment vehicles, such as 401(k) plans and individual retirement accounts. Or emphasize investments generating capital gains rather than ordinary income.

• Don't concentrate your investment portfolio in one category. Diversify so when one asset class declines, other assets will hopefully be increasing or not decreasing as much.

• Evaluate your portfolio's performance annually. That way, if returns are lower than you targeted, you can make adjustments to your strategy to compensate for these variations in return.

* Source: Stocks, Bonds, Bills, and Inflation 2007 Yearbook. The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. Past performance is not a guarantee of future performance.