Forum Archive Index - May 2001

["Mike Hudson" <mikehudson@clear.net.nz>]

Biron gold wrote

 

"I would be interested in the opinions of others, on if you think that
averaging 20% per annum over the long term is achievable.
Am I being to ambitious? Perhaps aiming to low?"

 

IMO investors exceptions have became unrealistic during the great bull run of the nineties particularly in the US where punters expected to make 20% plus returns year after year - the last year has disabused them somewhat but old habits die hard.

 

I don't have the numbers in front of me but I would guess that over a long term, say 20 to 30 years, the average real return on a balanced or index related investment might have been around 8% to 9%.

 

Of course it is quite possible to achieve 20% a year and no doubt some do but to do that they would have to consistently beat the indices which means accepting a high level of volatility and risk. How much risk can be tolerated depends on the individuals circumstances; are they betting their life savings or is it play money?

 

Also to adopt a crude benchmark such as a 20% per annum gain seems to be unrealistic, market movements will make up the bulk of the returns; for example I have a fairly conservatively managed portfolio but the returns have ranged from plus 32.1% for the year to 24th March 2000 to minus 10.4% for the year to 2nd October 1998; much of this movement being out of my control. Over the last five years I have averaged 14.6% as the volatility smoothed itself out.

 

I think a more reasonable goal would be to outperform the index that most closely fits your portfolio (NZSE 40, All Ords, S&P 500, MSCIA or whatever) by a given percentage, say 5%. This would give you a much better guide to how well you have performed.

 

Cheers

Mike H