The first illustration depicts the growth of an average equity mutual fund investment when $10,000 in contributions are made in the same pattern as the average investor. The results are an ending value of $20,816. This is based on the S&P 500.
The second illustration depicts the growth of a systematic investor using dollar cost averaging to make $10,000 in contributions. The systematic investor ending value is $35,439; representing an advantage of $14,623 or 70% over the 20 year period.
Low Rates Keep Returns Low
Investor returns on fixed income funds reflect the low interest rate environment. Fixed income investors consistently lag inflation in all time periods measured.
Fixed income funds are the better alternative for investors that worry about the market and those with short term needs. Fixed income returns were far less than equity funds but far better than doing nothing, where inflation erodes wealth. Systematic investing in fixed income funds actually was ahead of inflation.
"If fear is the excuse, fixed
income is the answer."
Do Asset Allocation Funds Really Work?
The 2004 results are unequivocal, yes. When measured by what investors actually earn, asset allocation funds deliver. They deliver longer retention, so investors make more money. They deliver protection even through the worst markets in history (2000 - 2002). They deliver consistency, with lower highs and higher lows.
Three & Five Year Investor Return Beat S&P
Asset allocation funds are expected to perform better than fixed income but not as well as equities. It is remarkable that in both the three and five year periods ending in 2004, the average asset allocation investor outperformed the equity index, a feat that equity investors have never done.
Isn’t it nice to know that we don’t have to succumb to the notion that our money either has to be in the market or in CDs? Our focus at Lighthouse has been to educate people on their investment options. For those of us who have an aversion to risk, we do have the opportunity to invest in some positions that will guarantee a specific rate of return. The opportunities that we represent are countless and some of them are listed in the real estate section (link to RE in IRA). Others will give us gains tied to the market without the risk and volatility of the market (link to EIA section).
Some of us will want to stay away from the market, see the futility of bank instruments and would like to stay with real estate. For those using non-retirement accounts we now have programs in place where we can act as third party administrators in pooling together many of our client’s non-qualified (no IRAs or 401k) pockets of money to purchase real estate, rehab, rent or sell, do maintenance, and take care of the tax requirements. This gives the average investor, who has neither the time nor the ability to buy and sell real estate, the benefits of owning real estate: tax efficiency, compounding Return on Investment, and guaranteed rate of returns based on something other than the markets and the volatility associated with them. All of this is done with the investors name on the deed to fully protect their capital. We have the advantage of being able to tailor fit our returns to their need. Some take the guaranteed income stream while others are taking the tax shelter of depreciation to offset their already high tax bill. This program is rapidly filling up and will be subject to a cap in the next few months. For more information, email us: