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A new survey matching Canadian investor sentiment with return expectations has some financial advisers shaking their heads.

According to the poll from Natixis Global Asset Management, more than half of the respondents think oil prices are headed for another big drop. That hits home considering one-third of TSX-listed companies are commodity-related, and another third – financials – are heavily exposed to the commodity sector.

Fifty-nine per cent of respondents said they feel vulnerable to another market shock comparable to the 2008 global financial meltdown.

As a result of all this gloom, 61 per cent said they want to maintain or reduce the level of risk in their portfolios.

Here's where things get out of whack. The average respondent also indicated that his or her retirement goals can be reached only if their investments gain in value by 9.3 per cent on average each year – over and above inflation.

"They must lower their expectations, or they are going to have to assume more risk. There is no free lunch," says Patrick Horan, principal and portfolio manager at Agilith Capital in Toronto.

Mr. Horan suggests the survey unveils a deep and common misunderstanding of the relationship between risk and reward – a misunderstanding that could have disastrous results in the current investment climate.

On the risk side, investors who want make their portfolios less volatile could usually direct their assets to the safety of bonds. But as economic growth languishes, global central banks are keeping interest rates near zero to stimulate spending, pushing bond yields to rock-bottom lows for the foreseeable future.

"On a 10-year Canada bond you are going to earn about 1.4 per cent each year. That does not cover inflation right now. You'll get your money back, but you're technically under water," Mr. Horan says.

Mr. Horan says only older investors who need to withdraw from their portfolios soon should hold bonds. "For clients between 40 and 50 years old we recommend 100 per cent equities. We do not have any bonds in those portfolios."

Corporations can also provide income to investors in the form of stock dividends. Yields can be more generous than bonds but investors risk price fluctuations in the underlying stock. Adding to the risk, Mr. Horan says income-hungry investors have been driving the price of dividend stocks up, and he fears prices will fall when interest rates finally go up. "Those stocks that look like bonds and act like bonds are very expensive," he says.

Even with a portfolio made up entirely of stocks, an annual return of 9.3 per cent is unrealistic.

"We think of average equity returns as being about six per cent each year over the past 150 years. If you're thinking of nine per cent you must assume you are in a bull market. Those returns are only achievable on the riskiest class of investments," he says. "We tell clients to expect drawdowns of 10 per cent – maybe 15 or 20 per cent – in the occasional year."

His advice to investors is to be patient. "The more risk you can take, the better off you will be. But the only way to mitigate volatility is buy and hold."

Andrew Pyle, a ScotiaMcLeod senior wealth adviser and portfolio manager based in Peterborough, Ont., isn't surprised most investors aren't realistic when it comes to risk/reward expectations. When he sits down with new clients he explains how the two interact by assuming an investment portfolio is evenly split between fixed income and stocks.

He explains the various levels of risk starting at the safest, which are bonds. "It's important to realize that when you ratchet down risk you go into fixed income," he says.

His typical fixed-income portfolio consists of a basket of guaranteed investment certificates (GICs), Canada and provincial bonds, and bonds from big corporations with stellar credit ratings. The maturity dates are staggered, or laddered, and reinvested in other bonds when they mature.

Then he breaks the bad news. GICs and government bonds pay annual yields well below 3 per cent, and safe corporate bonds rarely exceed 5 per cent.

With fixed income cranking out a mere 2 per cent return, the investor expecting 9 per cent must generate the remaining 7 per cent from the equity half.

"For me to get that extra seven per cent – given that I only have half in the stock market – means that part of my portfolio has to generate 14 per cent per year on average," he says. "That's in a perfect world where there's no inflation."

Coincidentally, the TSX Composite Index returned 9 per cent in 2014. Mr. Pyle says even a portfolio made up entirely of stocks – excluding inflation and investment fees – could not consistently match that level.

"Even if I took the Toronto Stock Exchange over the past five years, and reinvested all the dividends, my annualized return is only about 7.7 per cent," he says.

He tells his clients to expect stocks to average a 5- to 10-per-cent return over the next decade. With the fixed income portion pulling the average down, he says overall portfolio returns will be lower. "The four- to seven-per-cent range is a realistic return expectation for that kind of portfolio based on what we know today."