Q: What can investors expect to be the worst-case scenario for the Dow this year?

A: If there's one thing you can expect from financial markets it's unpredictability.

While stocks have generated average annual compound growth rates upward of 10% over time, the path has been far from smooth. To earn the market's returns, you need to endure gut-wrenching bear markets and keep yourself in check during euphoric highs.

The key to success in investing is to prevent panicking during market declines, and have the courage to buy beat-up investments on the cheap. Conversely, during times other investors are overly optimistic, you should avoid the urge to load up on overpriced investments and think about selling some of your winners.

It sounds easy, but during a market drop or a rally, it can be difficult to keep your head. A great way to stay grounded is to a have an idea of what kinds of returns, or declines, it's reasonable to expect. And I can answer that.

There are several ways to get a decent idea of what the future might hold for stocks. One way is by examining historical statistics. You've probably heard the boilerplate warning that past performance isn't a predictor of future returns. And that is certainly true in the short term.

But, if you examine market returns for many decades, you can get an idea of what kinds of risk and reward you can expect over the long haul.

Analyzing returns of the IFA U.S. Large Company index, a good measure of how large U.S. stocks have done, gives you a reasonable idea of how stocks have fared. The IFA U.S. Large Company index contains large stocks, as does the Dow.

Specifically, the IFA U.S. Large Company index has returned 9.2% a year, on average, since 1928. And that's a good reason why you can reasonably expect a 9% to 10% annual average return over the long run. Again, don't think you're going to get a 9% to 10% return each year. Nothing could be further from the truth.

The IFA U.S. Large Company index is risky, meaning you can expect giant swings in returns from year to year. To be precise, there's a 68% chance that stocks will have an annual return ranging from a 28.5% gain to a 10.1% loss. You can expect your stock returns to be in that band most years.

However, as investors have learned recently, market volatility can be even more severe. Statistically, there's a 48% change that stocks could fall as much as 29.4% in any given year. And there's a 49.8% chance stocks could fall as much as 48.8% in a year.

As you can see, most of the time stocks' downside risk is less than 10.1% in a year. But by investing, you are accepting the risk that losses could be greater than that. Much greater than that.

If these possible losses scare you, it might be a sign you're not invested properly. By adding other types of investments to your portfolio, like bonds, you can help smooth out the ups and downs.stocks, bonds & forex trading - source: www.usatoday.com