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 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,
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 tweets.)
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