Investing in Indexes...what kind of average return over 20 years is normal?

Question

I have heard that the indexes return an average of 10=12% over the long haul but I have not seen any hard data on this. I realize this is maybe a real simple question (bare with me, I am a newbie to investing) but where can I find this data and is it true?

Should I expect to even do better than 10-12% with dollar cost averaging if I am putting in the same amount on a monthly basis?

All input is greatly appreciated.

Answer 1

I guess it depends on what indexes you are talking about...I know looking at the past 75 years in the stock market small businesses have had an average return of somewhere around 12%...if you are personally going to invest a large sum of money and you are looking to keep it in for a long period of time (20 years is a good start) you could look at putting it in aggressive funds initially but you are probably going to want to put it into something safer as you come closer to wanting to access that money...

Answer 2

The 10 to !2% is correct. Dollar cost averaging works well to get and keep investing, like funding a 401K. In a choppy market, indexes rise and fall in value. you could make a little extra but don't count on it. The one advantage of using index funds, is you will not under perform the markets return.Read the book by Jeremy Siegel., called Stocks For The Long Run. the book has all the data about the market from the teens through 2000. The book is very good reading for first time Investors. Read and learn before investing. Good Luck

Answer 3

The Vanguard 500 Index Fund has averaged ~12% a year since its inception 30 years ago. See this link:
https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0040&FundIntExt=INT
However the S&P 500 has only averaged ~11% since 1926, see this link:
http://www.nationalreview.com/nrof_glassman/glassman032602.asp

I don't expect that dollar cost averaging will get you significantly more than 10-12% a year. Remember that 10-12% is an average over many decades, a single decade may bring you a much higher or lower return. The 1930's had an average return a year of -1%. Stocks dropped an average of 1 percent a year, with lots of ups and downs. The 80's and 90's had ~17% a year return.

Answer 4

You are correct. If you look at the history of the U.S. stock market you will see it has gained about 12% per annum over this entire period. Of course, this does not mean it gains 12% every year. There have been periods of enormous growth and periods of severe bear marekts.

Index trading is really a very lazy way of investing in the stock market. Instead of trying to pick a few great stocks and time them with T.A. for superior results many fund managers simply lump their whole portfolio into an index and automatically get the gains the index makes. If the index gains 15% that year they make 15%. If it falls they simply balme the index. No stock picking needed.

As an individual trader I have to aks why you are even considering this type of investing? Unless your goal is complete capital preservation this is not the way for an individual investor to make wealth in the stock market.