The words “average” and “normal” are often used by investors as though they have the same meaning. However, when it comes to the markets, the returns that investors earn in any given year are frequently very different from the long term average of their returns.
Long term average rates of return for the equity markets are usually quoted in the 8% to 10% range, but data going back to 1926 shows that the occurrence of returns in the average range are anything but normal: they occur in less than one out of 10 years. Thus the “normal” investor experience is for annual equity returns that are either much higher or much lower than “average”.
The charts on the Data Page illustrate two tried and tested ways to ease the discomfort that arises from irregular market returns.