Imagine if you knew ahead of time how your favorite mutual funds in the stock market were going to do.
Let’s say you are retiring within the next few years and you could subtract all doubt, news, and politics. You know for a fact that you will average more than 8 percent per year.
This is not a Back to the Future trick question, Biff, you actually hold the final score for each year for all mutual funds.
Here are three of the scores:
(+86%, -39%, and -21%) / 3 years = +8.7% per year.
There is only one problem with widely promoted “average rates of return.” They do not happen in the real life of your money. The math is very misleading.
Comparatively, think back to real periods of time that some of us lived through when real math was used (i.e. the Nasdaq Composite of 1999-2001), because that time will happen again.