The Ignorant Investor

It's long been a general rule of thumb of retirement planning in books that people should allocate 401Ks according to their risk profiles. Stocks have higher risk, they say, but on average "grow by 10% a year." This was true when I was younger, but since 2000 these projects proved ephemeral. Vanguard's Total Stock Market index fund has, for example, earned a total average return of 3.67 percent as of yesterday. At the same time, the company's Total Bond Market fund, the "safe" option for namby-pamby risk averse investors, earned 5.32 percent average annual returns over the same period. It's rare to see that kind of outperformance by bonds over stocks over a 10-year period.

If the time period under consideration is expanded to include the 1990s, the 20-year picture is more in line with expectations. The Total Stock Martin fund was created in 1992, and it's average return over the course of its existence is now 8.72 percent. This is a measure of just how gigantic the returns were in stocks during the 1990s. Since 2000 we've been locked in a trading range. My portfolio goes up, then it goes down, then back up. But I never get any richer.

One of these days we'll make it past the 1990s highs of 2000 for good. But there's no way of knowing when that's going to be.