Average returns almost never happen in the markets

It’s something you’ll hear in your entry level courses in finance or investing: On average, stocks return about 10% per year and bonds return about 5%.

Unfortunately, in any given year, average almost never happens. Just get it out of your head.

Those averages belie the incredible amount of volatility that has historically occurred and will most likely occur again in the future.

Vanguard recently tweeted this scatterplot charting annual stock and bond returns since 1926. The gold bar covers average stock market returns and the silver bar covers average bond market returns.

cotd vanguard average returns@Vanguard_FA“Since 1926, the average annual return for US stocks has been a little more than 10%, and this seems to be pretty common knowledge for even neophyte investors,” Vanguard analyst Donald Bennyhoff wrote. “So 10% would seem to be a reasonable expectation for an average year, right? Our illustration … shows how often that assumption is erroneous, but it is also irrelevant.”

Again, just get it out of your head that a year may turn out to be an average year.

NOW WATCH: Why Chinese executives keep disappearing

businessinsider?d=yIl2AUoC8zA businessinsider?i=x1i4UTtmYzU:-N1czCHKmy businessinsider?i=x1i4UTtmYzU:-N1czCHKmy businessinsider?d=qj6IDK7rITs businessinsider?i=x1i4UTtmYzU:-N1czCHKmy


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s