These charts track the investment return for a range of investments over time. Note how much the short-term results change from year to year. For example, in 1999, the one-year return for the S&P 500 index was 19.8%. This was at the height of the technology boom. By 2002, the one-year return for the same index was -17.8%. Even the 90-day T-Bill index, which acts like a benchmark for short-term savings, moved from 4.8% in 1999, to 2.4% in 2004. This corresponds with the drop in interest rates during that period. The downward trend continued across most benchmarks through to June, 2006.
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What can you conclude from this data?
- Results even out the more years you consider. For example, the average return over 20 years is somewhat similar from one chart to the next. Again, 2006 represents a low point compared to earlier years.
- To predict what you may make using past results, base your estimate on the average return over as many years as possible. Time smooths out the ups and downs in the economy.
Don’t forget: These returns are for indexes, which track a group of investments. A specific investment might perform very differently from the index which tracks similar types of investments. For example, a stock index may perform well over a given period, but the specific stock you bought might not perform very well.
Remember: Past results never guarantee what you’ll see in the future.
A lot of different factors can affect stock and mutual fund prices. Be realistic. Also, don’t forget the impact fees can have on what you make.