Investors are lulled into complacency about “average” returns. They hear what securities have earned on average, going back years, and they then project earnings figures into the future.
These prospective averages are often wrong. Indexes on which they are based are skewed. In years past, companies that failed may not have been included in statistics that are now used; therefore past results are overly positive.
In addition, there are steep investment-experience cycles which affect average results at any time. You may need to cash in funds just when your portfolio is in a down trend, or has recently been in one, and hasn’t had time to recover. Thus, measuring points of cycles should be taken into account.
Whenever you hear securities will bring you average returns, think again about what that number really is. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)
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