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So what is the average return for an investor? What is the average return a 401k investor experiences?
Dave Ramsey
- Thread starter 1manshow
- Start date
So what is the average return for an investor? What is the average return a 401k investor experiences?
cool........ but I actually think my question was asked to someone else, but thank-you for the input.
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i'm not going to defend dave ramsey's teachings, however, as a financial advisor, i should point out that the investing the the market over a longterm has its advantages.
here's some of dave ramsey's info:
"Can I really get a 12% return on my mutual fund investments, even in today's market?"
Where Does It Come From?
When Dave says you can expect to make 12% on your investments, he's using a real number that's based on the historical average annual return of the S&P 500. The S&P 500 gauges the performance of the stocks of the 500 largest, most stable companies in the Stock Exchange. It is often considered the most accurate measure of the stock market as a whole. The current average annual return from 1926, the year of the S&P's inception, through 2010 is 11.84%. That's a long look back, and most people aren't interested in what happened in the market 80 years ago.
So let's look at some numbers that are closer to home. From 1991–2010, the S&P's average is 10.66%. From 1986–2010, it's 11.28%. In 2009, the market's annual return was 26.46%. In 2010, it was 8%.
So you can see, 12% is not a magic number. But based on the history of the market, it's a reasonable expectation for your long-term investments. It's simply a part of the conversation about investing.
But What About The 'Lost Decade'?
Dave often points out that every 10-year period in the market's history has made money, and that was true until the latest market drop in 2008. From 2000–2009, the market endured a major terrorist attack and a recession. S&P 500 reflected those tough times with an average annual return of 1% and a period of negative returns after that, leading the media to call it the "lost decade."
But that is only part of the picture. In the 10-year period right before that, 1990–1999, the S&P averaged 19% annually. Put the two decades together, and you get a respectable 10% average annual return.
But that's the past, right? You want to know what to expect in the future. In investing, we can only base our expectations on how the market has behaved in the past. And the past shows us that each 10-year period of low returns has been followed by a 10-year period of excellent returns, ranging from 13% to 18%!
If You're Still Unsure…
Will your investments make that much? Maybe. Maybe more. But the idea here is that you invest and invest for the long haul. Don't let your opinion over whether or not you think a 12% return is possible keep you from investing.
In fact, if you'd rather project your mutual funds to grow at 10% or 8%—that's cool with us. Just set a goal and invest whatever you need to in order to meet that goal."
i am personally a fan of investing in the market. i practice what i preach. everyone's situation is different though so not every situation should be treated the same.
here's some of dave ramsey's info:
"Can I really get a 12% return on my mutual fund investments, even in today's market?"
Where Does It Come From?
When Dave says you can expect to make 12% on your investments, he's using a real number that's based on the historical average annual return of the S&P 500. The S&P 500 gauges the performance of the stocks of the 500 largest, most stable companies in the Stock Exchange. It is often considered the most accurate measure of the stock market as a whole. The current average annual return from 1926, the year of the S&P's inception, through 2010 is 11.84%. That's a long look back, and most people aren't interested in what happened in the market 80 years ago.
So let's look at some numbers that are closer to home. From 1991–2010, the S&P's average is 10.66%. From 1986–2010, it's 11.28%. In 2009, the market's annual return was 26.46%. In 2010, it was 8%.
So you can see, 12% is not a magic number. But based on the history of the market, it's a reasonable expectation for your long-term investments. It's simply a part of the conversation about investing.
But What About The 'Lost Decade'?
Dave often points out that every 10-year period in the market's history has made money, and that was true until the latest market drop in 2008. From 2000–2009, the market endured a major terrorist attack and a recession. S&P 500 reflected those tough times with an average annual return of 1% and a period of negative returns after that, leading the media to call it the "lost decade."
But that is only part of the picture. In the 10-year period right before that, 1990–1999, the S&P averaged 19% annually. Put the two decades together, and you get a respectable 10% average annual return.
But that's the past, right? You want to know what to expect in the future. In investing, we can only base our expectations on how the market has behaved in the past. And the past shows us that each 10-year period of low returns has been followed by a 10-year period of excellent returns, ranging from 13% to 18%!
If You're Still Unsure…
Will your investments make that much? Maybe. Maybe more. But the idea here is that you invest and invest for the long haul. Don't let your opinion over whether or not you think a 12% return is possible keep you from investing.
In fact, if you'd rather project your mutual funds to grow at 10% or 8%—that's cool with us. Just set a goal and invest whatever you need to in order to meet that goal."
i am personally a fan of investing in the market. i practice what i preach. everyone's situation is different though so not every situation should be treated the same.
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gee, and here I always thought Dave said 12% because that's the limit the SEC allows you to project. claiming more might get ya all in a bit of trouble.
When I look up the real total returns for the S&P from 50 to 2009 it shows 7% (adjusted for inflation).
by the way, what licenses do you hold?
When I look up the real total returns for the S&P from 50 to 2009 it shows 7% (adjusted for inflation).
by the way, what licenses do you hold?
- 11,598
Average does not equal actual.
Anyone can skew averages all they want. The truth is that every year, you compound your RISK as well as your potential returns.
If you grow your portfolio from $100k to $500k over ANY length of time, and have a 50% drop, you're down to $250k. You still need 100% gain to get back to where you were. How long can that take? Could a lower fixed guaranteed rate be better than a loss? It obviously depends on every individual client.
Also, let's not get into the fact that the market is just not the same over the past 80+ years. Economics has changed. If you keep rehashing the same advice over the past 50 years as you do today, without adapting to change, your clients aren't going to like you very much.
The markets are diluted with federal spending like nothing else. You'll be investing your money into the markets at taxpayer expense. So you might get your 10% return, but it'll cost you more in taxation (capital gains, etc.). So, your higher return was diluted by taxes, which means that your real rate of return is quite low AND you took on risk to get it.
I'm not saying that insurance is the only true way to go. But you need to understand that we're in a completely new economy... and you can't just rehash yesterday's advice.
"Past performance is never an indicator of future returns."
Anyone can skew averages all they want. The truth is that every year, you compound your RISK as well as your potential returns.
If you grow your portfolio from $100k to $500k over ANY length of time, and have a 50% drop, you're down to $250k. You still need 100% gain to get back to where you were. How long can that take? Could a lower fixed guaranteed rate be better than a loss? It obviously depends on every individual client.
Also, let's not get into the fact that the market is just not the same over the past 80+ years. Economics has changed. If you keep rehashing the same advice over the past 50 years as you do today, without adapting to change, your clients aren't going to like you very much.
The markets are diluted with federal spending like nothing else. You'll be investing your money into the markets at taxpayer expense. So you might get your 10% return, but it'll cost you more in taxation (capital gains, etc.). So, your higher return was diluted by taxes, which means that your real rate of return is quite low AND you took on risk to get it.
I'm not saying that insurance is the only true way to go. But you need to understand that we're in a completely new economy... and you can't just rehash yesterday's advice.
"Past performance is never an indicator of future returns."
- 15,041
These numbers assume a lump sum deposit in the very first year of the period measured. Does the average 401k/IRA/Roth IRA participant make a lump sum deposit? What happens to the returns when you account for equal or slightly increasing deposits over the measured period?
- 15,041
So the investment industry is pure and innocent? They don't have products they'd like to sell too? They don't tout the benefits of their products while ignoring the drawbacks?
I would say that they do, but my post only referenced life insurance. If we start a mutual fund thread, or a gold thread, or a real estate thread, then I give my opinions on those topics.
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S&P 500® with Monthly Dividends
Since inception (12/31/1927 – 2/28/2011)
@$50 Per Month
Average annual total return: 10.58%
Inflation over that time period: 3.73%
- - - - - - - - - - - - - - - - - -
Use a Roth IRA and you pay your taxes up front. The principal and gain grow tax free forever.
Actually, risk lessens the longer you timeframe is extended.
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