If you look at the “average” stock return as defined by the performance of the S&P 500 index, you will see that 10% represents the average from 1926 to 2018. However, if you look at how many times the annual return in these 93 years has fallen between 8% and 12% (i.e. +/- 2%) you will find that this has occurred EXACTLY six times.
Message of the day folks:
- The average return does not exist!
OK, so I am being a bit melodramatic here; an average does exist. However, the variance in returns is such that rarely will we see an annual return that is close to the long-term average. And that reality is something that a number of investors miss. Unfortunately, lack of understanding of this critical piece of information leads to poor investor behaviors.
You can read more about this topic by following this link.
If you would like to discuss this topic—or any topic related to the 5 “F”s of F5 Financial (faith, family, friends, fitness, finance)—feel free to reach out, and I’ll be happy to set some time up for us to connect.
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F5 Financial is a fee-only wealth management firm with a holistic approach to financial planning, personal goals, and behavioral change. Through our F5 Process, we provide insight and tailored strategies that inspire and equip our clients to enjoy a life of significance and financial freedom.
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