It Is NOT Normal to Be Average!
By: Curt Stowers
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.
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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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