Cubsfan

Ok, this might be a stupid question (or it may not even make sense, like so many of my other posts ), but...

I've heard from a lot of places, including here, that since the stock market started, the average yearly return has been aroud 10% (I think that's what it is).

What I was wondering is if there's graph somewhere or something of the rolling 40-year average. I'm guessing that the average time from savings start to retirement is about 40 years, so I'll guess that's a good estimate of what people would get over their working-life as a return.

For example, there may possibly be a huge difference between a guy who retired in 1999 and a guy who retired in 2001, so the 10% average may not have held true.

Basically, I guess what I'm asking is whether the overall average really matters as much an idea of 40-year averages.

I look forward to people who actually know what they are talking about tell me why I'm completely wrong

LegendKiller

The difference can be potentially massive.

For example, if you take a guy who earned 10% per year for 34 years, then earned 17% in the last 6 with a starting principal of 10k, he would have 655,340k at 40 years.

Then, take a guy who earned 10% for 28. 17% for 6, then 4 years of 2% and 2 more of 5%, that person only made 441458k.

Remember that returns are compounded, thus the multiplying effect of larger sustained returns at the end of a maturity compared to level returns at the end is going to be huge.


LK

Jeffbx

Stock is a great investment over the long term, but like LK shows the short term fluctuations can make a huge difference.

At Moneycentral, you can chart stocks over a 40 year term, and you'll notice that most of them are pretty similar... slow, gradual growth until you hit the mid 1990's, and then things start to go bananas.

All said, stock can be a very risky investment in the short term, but I think an essential part of any long term portfolio.

yippiekiyeh

Stocks should always be looked at as a long term deal. If you're shortterming it, I feel like it's like buying lottery tickets. There's a chance you might hit it big, but there's a greater chance you're going to get burned. Whereas there's nothing glamourous about saving alittle bit of money each month, but do that for 20 years and wowzers you might actually have a million dollars!

__________________
Distributed.Net
I'm Trying this blogger thang...

Merlin

I think he means the fluctuations during the early part of the portfolio has a greater impact. And that is without a doubt true. Remember averages are just that...averages. Some will do better and some will do worse. And some much worse. When you start does have a huge impact on the overall performance.

__________________