When discussing investing options, the single most common referenced metric has got to be the average return. Reams of books and blogs have been written on individual asset classes and composite portfolios with the highest average returns looking both backward and forward, and amateur and professional investors alike spend more time than they probably want to admit thinking about how to maximize their own average return. Long-term averages are both set on a pedestal and also taken for granted, as many people idolize the average to the point where they’re willing to ignore very real risks under the belief that superior performance is inevitable if they only wait long enough.
But what happens when the long-term average return never manifests in your own portfolio even over extended timeframes? Was the data wrong? Did the markets change?
In reality, it’s most likely none of the above.