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The success or failure of your retirement plan is dependent on your ability to evaluate investment strategies, mutual funds, money managers, and/or financial advisors...Continue Reading

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Average Mutual Fund Returns-Expectations vs. Reality

 Investors have more options than ever before, both active and passive. Passive, or buy and hold investing, is the mainstream approach; but has it allowed investors to achieve their investment goals as compared to the reality of the markets? As 2011 comes to close, it’s time to look back at average mutual fund returns.

The hundred year average return for the stock market is a nice piece of financial trivia, but as mere mortals, we have to work within real-world time-frames, like ten and twenty years. What happened to investors with fifteen years to go until retirement who expected returns like the long term averages? Traditional investors are 87.36% behind their fifteen year expectations.

Investors following traditional financial advice never imagined a future different from the long term averages. The bad news is the average mutual fund is finishing up a thirteen year losing period net of inflation and a five year period with a 20% (or greater) loss net of inflation.

No one knows if future returns will be higher or lower than the long term averages. We can all agree on this fact. We can also agree that investors want to optimize their portfolios to perform well in the future, not the past. If the future is unknown, and we want to do well in the future, then our only choice is to structure our portfolios to perform in all kinds of markets. This includes a future in which returns are lower than the past. This is why alternative investment strategies that are uncorrelated with the stock market need to make up a large portion of our portfolios and IRA’s. This is the only approach that addresses our real goal of getting ahead in all kinds of markets, not just the best ones.

Lee Hull is the principal of Hull Capital Management, and the author of Less Risk, More Return,


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