What is the average return on your retirement investment account (IRA/401K)

SouthernDemocrat said:

I have noticed for the past few years that my average return on my 401k has not been that great. It is a long term investment of course so I am not concerned, but rather it just seems like the notion of 10% returns year over year is a rather outdated concept today. That really hasn't consistently been the case since the 90s. Anyway, over the last 5 years my average return has been about 5% or so (some better years, some worse). Otherwise fairly anemic.

So anyway, I am not meaning to create a political debate as to why this is the case, but rather just wanting to see if this is pretty typical.

One last point, your personal rate of return should be the growth from your retirement plan's investments, not what you contribute to it.

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My experience with 401K investments are twofold. First the good: employer contribution. Next the bad: All were front load funds. After the fee was paid up front no one managed the fund. It basically just sat collecting dust. After changing jobs I transferred the money to a business that actually manages the money taking 1.25% of the return on the investment.

chuckiechan said:

It depends on your age. If you are young, then 6-8% would be good considering how moribund our economy is. If you are in your 60's 2% is pretty good. If you are retired, 1.5% is not bad. All of these percentages are "net" after fees.

It's all about risk vs age.

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I think the problem is that people get sold on these expectations that their account will average out over a 10 year period to grow between 8 and 12 percent a year when the only time that has happened was in the 90s.

I think you have to have some kind of a huge transformation in an economy to have that kind of growth. For example, in the 90s we had the IT revolution and companies large and small moving to digital inventories and that sort of thing that lead to huge productivity improvements. Before that, it was the Space Age of the 60s, then before that it the post war rebuild after WW2, and of course before that the Industrial Revolution.

Since the 90s we have not had an big transformative events in our economy and nothing really on the horizon (though these things can be very hard to predict). So there is growth, but not the kind of growth you see when something comes along that really changes everything. Granted there has been a big change with regards to smartphones, but its not that transformative in a macro-economic scale. If anything, the iphone probably reduced some productivity.

Anyway, that's just my 2 cents. I think people would be better served these days by saving as much as they can in their retirement accounts rather than expecting great performance out of them with nominal savings on their end.

IMO, the transformation issue of the period is going to be inflation.

The mandated raise in wages will add costs to all products, and the expected changes in import rules will also raise the price of products coming from China. As it stands now we are exporting capital to China in exchange for not having to pay higher wages here. The only way to finance these wages is to cut jobs or increase work.

Our trade imbalance can't go on forever, and some people react sooner than others. Regardless of who wins the election, the mood of the country is one indicating that a change in our relationship with China is overdue.

But I see the fix for the national debt as baked into that cake, since it is my opinion that we must inflate our way out of it, which for asset owners in not a bad thing, but for the pay check to pay check worker, and those on fixed incomes, welfare or otherwise, it's a major economic beat-down.

My bet for a twenty/thirty something is 30% in BRK-B, the lower priced version of Berkshire Hathaway. You can get solid performance and a built in inflation hedge for (almost) free. Set it up as a ROTH.

SouthernDemocrat said:

It is a long term investment of course so I am not concerned, but rather it just seems like the notion of 10% returns year over year is a rather outdated concept today.

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This is never how the stock market has been. 10% nominal return is the expected average over long term. Not over a couple years. Over a few years your returns could be all over the map. Rocketing up, plummeting down, sitting flat. It's statistical noise. Ignore it.

the_recruit said:

This is never how the stock market has been. 10% nominal return is the expected average over long term. Not over a couple years. Over a few years your returns could be all over the map. Rocketing up, plummeting down, sitting flat. It's statistical noise. Ignore it.

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I don't disagree, but I think even then its depends on what 30 year period you are in it. There are times when you could be in it for 30 years and see less than 10% while other 30 year periods could see more.

SouthernDemocrat said:

I have noticed for the past few years that my average return on my 401k has not been that great. It is a long term investment of course so I am not concerned, but rather it just seems like the notion of 10% returns year over year is a rather outdated concept today. That really hasn't consistently been the case since the 90s. Anyway, over the last 5 years my average return has been about 5% or so (some better years, some worse). Otherwise fairly anemic.

So anyway, I am not meaning to create a political debate as to why this is the case, but rather just wanting to see if this is pretty typical.

One last point, your personal rate of return should be the growth from your retirement plan's investments, not what you contribute to it.

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I don't know what my annual rate of return has been. Honestly, I don't pay much attention to my 401k at all. I'm so far away from retirement there doesn't seem a lot of point to watching it closely. I throw as much money as I can at it every month and hope it will be enough.

SouthernDemocrat said:

Just so everyone knows, if you calculate your returns based on the returns of the individual funds you are invested in, you will get an inflated number. Instead you should calculate your returns by taking the amount of money in your plan on January 1 compared to the following December 31, subtract the amount you contributed over the time period and your employer contributed over that time period, and determine the percentage growth. I would be very surprised if anyone was over 8% average growth over the last 5 years if they did that.

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Per those index fund ETFs, the average is definitely over 8%; not a single one of them has performed less than a 9% annualized return net of fees and DRIPs over a 5 year period, and ~70% of the investment substantially more than 9%.

The secret is not about investing in a broad market index fund (though that's typically better than trying to pick winners), but in investing in index funds that mimic the strongest industry sectors in the long term: consumer staples I highly recommend in particular which is my best performer, and one of the least volatile to boot. Everyone interested in maximizing their returns over the long run should check out James O'Shaughnessy's 'What Works on Wall Street' who has datamined and collated stock information since 1926 to determine the best long term approaches/investments, where consumer staples, financials and health care all prove to be top performing industries.

EMNofSeattle said:

Absolutely false.

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Sorry. I disagree. The big boys, the big spenders, or as they call them in Vegas, The Whales have a HUGE advantage in Vegas, as in WS, over the little guys like you and me. WS is a casino, it's a rigged game. No different than a casino. Much of WS now is 'high frequency' trading, run by huge computers. You got that advantage? No, I know you don't. Neither do I.

Or you lose your money because someone pulled a 'pump and dump'.. It's nothing more that gambling, a casino.

SenorXm/Sirius said:

Sorry. I disagree. The big boys, the big spenders, or as they call them in Vegas, The Whales have a HUGE advantage in Vegas, as in WS, over the little guys like you and me. WS is a casino, it's a rigged game. No different than a casino.

You lose your money because someone pulled a 'pump and dump'.. It's nothing more that gambling, a casino.

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If you're a short term trader, I agree; in the long run though, the odds are very much in your favour if you take a diversified approach.

SouthernDemocrat said:

I have noticed for the past few years that my average return on my 401k has not been that great. It is a long term investment of course so I am not concerned, but rather it just seems like the notion of 10% returns year over year is a rather outdated concept today. That really hasn't consistently been the case since the 90s. Anyway, over the last 5 years my average return has been about 5% or so (some better years, some worse). Otherwise fairly anemic.

So anyway, I am not meaning to create a political debate as to why this is the case, but rather just wanting to see if this is pretty typical.

One last point, your personal rate of return should be the growth from your retirement plan's investments, not what you contribute to it.

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Completely depends on how you allocate it --- my return is running 10 % yet I have a mix of S&P and mid growth and some cash.

How are you allocated and what is your risk tolerance?

Dion said:

Completely depends on how you allocate it --- my return is running 10 % yet I have a mix of S&P and mid growth and some cash.

How are you allocated and what is your risk tolerance?

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81% Domestic Stocks, 168% Foreign Stocks, 1.2% Short Term. I am in 5 different funds: EAGLE MID CP GRTH R6 (HRAUX), SPTN 500 INDEX ADV (FUSVX), FID GROWTH CO K (FGCKX), OAKMARK INTL I (OAKIX), BUFFALO GROWTH (BUFGX).

SouthernDemocrat said:

I think the problem is that people get sold on these expectations that their account will average out over a 10 year period to grow between 8 and 12 percent a year when the only time that has happened was in the 90s.

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Inflation adjusted, the CAGR since 1970 has been 10.28%. 1980 has been 11.56%. 1990 has been 9.3%, and 2000 has been 4.02%.

I think a lot of it is the 2008 crash still rocking the numbers.

When I do my own long term planning, I run scenarios (generally) for 6 and 7 % as long term averages.

I think you have to have some kind of a huge transformation in an economy to have that kind of growth. For example, in the 90s we had the IT revolution and companies large and small moving to digital inventories and that sort of thing that lead to huge productivity improvements. Before that, it was the Space Age of the 60s, then before that it the post war rebuild after WW2, and of course before that the Industrial Revolution.

Since the 90s we have not had an big transformative events in our economy and nothing really on the horizon (though these things can be very hard to predict). So there is growth, but not the kind of growth you see when something comes along that really changes everything. Granted there has been a big change with regards to smartphones, but its not that transformative in a macro-economic scale. If anything, the iphone probably reduced some productivity.

Anyway, that's just my 2 cents. I think people would be better served these days by saving as much as they can in their retirement accounts rather than expecting great performance out of them with nominal savings on their end.

Click to expand...

Over my lifetime, saving 15% specific to retirement accounts is pretty much where I intend to max out. Right now we have it locked down at 10% because we are also trying to save a house downpayment (we'll kick it back up after we take care of the house). But rates of return over decades become pretty important. $3500 a year over a 45 year working lifetime at 5% rate of Return is $558,950. At 7% it's just over a $1 Million. That ~half a mil is pretty important at retirement time.

Unfortunately, cramming in as much as possible as early as possible is what's really beneficial - and that's precisely when folks are least interested in doing so.

Surrealistik said:

If you're a short term trader, I agree; in the long run though, the odds are very much in your favour if you take a diversified approach.

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Well as I pointed out in my previous post, some of that depends on your age, when a person plans on retiring, etc.

But yeah, long term is a different ballgame compared to short term.

SouthernDemocrat said:

I have noticed for the past few years that my average return on my 401k has not been that great. It is a long term investment of course so I am not concerned, but rather it just seems like the notion of 10% returns year over year is a rather outdated concept today. That really hasn't consistently been the case since the 90s. Anyway, over the last 5 years my average return has been about 5% or so (some better years, some worse). Otherwise fairly anemic.

So anyway, I am not meaning to create a political debate as to why this is the case, but rather just wanting to see if this is pretty typical.

One last point, your personal rate of return should be the growth from your retirement plan's investments, not what you contribute to it.

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This was interesting to me, so I decided to look.

I have no idea.

I have most of it with Fidelity, but the rate of return data only goes back two years. So I cant really tell on the website what my actual rate of return would be.

Even if I printed statments every year (and I dont), how could you really figure it out easily? I continually contribute, so I cant just look at those numbers.

This is not too good...

SouthernDemocrat said:

I don't disagree, but I think even then its depends on what 30 year period you are in it. There are times when you could be in it for 30 years and see less than 10% while other 30 year periods could see more.

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Right. There's no free lunch in investing (except for diversification, that's the one and only free lunch). Stocks offer potential higher returns....at the price of increased risk. Nowhere is 10% nominal return guaranteed to stock market investors. But the good news is the volatility in your potential returns diminishes the longer you hold. Since the inception of the dow-jones

The worst annualized growth seen over a 1-year period is -53%
The worst annualized growth seen over a 10-year period is -1%
The worst annualized growth seen over a 35-year period is +6%

This is why buying and holding for long term is important. Only two numbers matter: the price the day you buy the stock and the price the day you sell the stock. If you put 35 years between those two days there is very little risk that you won't have earned a healthy profit. Don't worry about the rollercoaster ups and downs that are bound to happen between those two days. It's just noise.

My wife and I have been retired since 2010. Since then we have reinvested our 401K/ira accounts under the guidance of a personal financial planner. We have well over $1.2 million in investments which have either grown or held relatively steady despite annual withdrawals on which to live and a turn towards a somewhat more conservative approach. We are now both 65 years of age and not yet collecting SS.