Investors are lulled into complacency with the false knowledge acquired about “average” returns. They hear what securities have earned on average going back years, and they then project the figures into the future.
These long-term averages are wrong. Indexes on which they are based may well be skewed. Years ago, companies that failed may not have been included in the statistics used today; therefore the results were overly positive.
In addition, there are steep investment-experience cycles which affect average results at any time. Furthermore, you may need funds just when your portfolio is in a down trend, or has recently been in one, and hasn’t had time to average out.
Thus, whenever you hear securities will bring you average returns, think again about what that number really is. No doubt lower.
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