One of the statistics that I often think about, and have mentioned with some frequency on this site, is the fact that the average equity investor compounded his wealth at 3.49% annually from 1990 through 2010 while the S&P 500 Index posted annual returns of 7.81% during that time frame.
To check out the study yourself, click here: http://www.thewpi.org/pdf_files/dalbar.2012.roccy.pdf
When I pursue investing, my long-term assumption is that I will achieve returns somewhere between 8-12% annually (assuming 3.5% annual inflation). If everything goes right, and companies like Coca-Cola, Johnson & Johnson, and Procter & Gamble are able to replicate their former glories (in terms of earnings per share growth) due to a combination of population growth, share buybacks, and price increases/productivity increases, then I imagine that figure will lean closer to 12%. If I make some big mistakes along the way like buy a decaying tech stock or a bank that experiences a blowup (think Wachovia, Washington Mutual, Lehman Brothers, etc.), then that figure may be closer to 8% over the course of my lifetime. My job is to make sure that I can still get to where I need to be even if I “only” hit that 8% annual rate over the course of my lifetime.
Originally posted 2013-08-15 23:56:35.