10 YEAR AVERAGE ANNUALIZED YEARLY RETURN
ON STOCK-MUTUAL FUND INVESTMENT IN USA
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| 10 YEAR AVERAGE ANNUALIZED YEARLY RETURN ON STOCK-MUTUAL FUND INVESTMENT IN USA |
Calculate your average yearly return
on a decade of investment
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Your year of investment (1960-2010) |
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The mutual fund managers usually say that if you invest for 10
years, your average annualized return would be 10.3%. They do not explain the
variations in returm which could be between -1% and 20%. Every investor should
understand this variation at the time of long-term investment.
Before considering further, let us look at one recommendation (published on Yahoo) that discusses this variation: |
| Stock Performance by Decade
Excerpted from Common Sense on Mutual Funds by John C. Bogle, pages 7-9 In discussing the total returns on common stocks, I refer not to individual equities but to widely diversified equity portfolios. For this purpose I will use the Standard and Poor's 500 Composite Stock Price Index. The returns generated by this diversified index correlate closely with the returns of diversified equity mutual funds. Since 1926, the average annual total return (taking into account both capital appreciation and dividends) on common stocks has been +10.3%. While it is important to know what to expect from the stock market in the long run, you should also consider how stock returns have varied over different periods. Since this book is addressed to the long-term investor, I use a decade as my standard for analysis. Figure 1-2 shows the annualized total return on common stocks for the average decade during the 67-year period ended December 31, 1992, and for each of the 58 "moving decades" within it (1925-35, 1926-36, continuing through 1982-92). |
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| As you can see, the variations in total return from one decade to the next were substantial. During the worst decade (1928-38), one of only two with a negative return, stocks provided an average annual return of -0.9%. During the best decade (1948-58), the average annual return was +20.1%. Nine decades witnessed returns of less than +5% and 16 of more than +15%. The majority, 33 decades, were in a middle range of +5% to +15%. If you had put your money to work at the beginning of any particular decade, there would have been roughly a 50-50 chance that your return would have been better than the +10.5% decade norm and a 50-50 chance that it would have been worse. |
| The expert has suggested about the variations and said that if you invest for a decade you have a 50-50 chance of getting better than 10.5% return or worse. We believe that the chances of understanding the possible returns for a decade can be much improved by looking at the figure differently and analyzing it. We suggest that this variation is cyclic in nature. Hence you can find out your 10 year annualized return, in general, for any year of investment. You can determine the possible annualized return after 10 years of investment as shown at the top. Note: |