How come I've been losing 4% per year over the long run in a stock market that returns 10% per year? May 2, 2008
Posted by Jeff Nabers in : Money , add a commentOne investment philosophy that has grown in popularity is “Because most mutual funds can’t even outperform stock indices, just invest in index funds.” This idea builds on the assumption that “over the long haul, the stock market goes up 10% each year.” Guess what…
The stock market does not go up 10% per year in the long run
- The math is just plain wrong. Lying averages tell us if you average the annual returns of the stock market it will equal its performance… but, as the name implies, it is not true. Lying averages tell you that if you are aiming for a 10% average return, and you have a 20% loss one year, it will take a 30% gain the next year to get back on track. Truthful math will tell you it will take a 50% gain just to get back on track for a 10% average annual return. Think about that in light of the stock market activity in 2000, 2002, and 2007.
- Any returns less than inflation is truly a loss. With inflation currently at 11.58%, you’ll need a 21.58% annual return to grow your wealth at 10% per year.
Just look at the last 10 years of data…
On the chart above, the red line reflects (more…)
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