COTW: How Your Starting Point Impacts Forward Returns

COTW: How Your Starting Point Impacts Forward Returns

Fidelity’s recent audit of its 30 million retirement accounts revealed that nearly 40% of its clients were over-allocated to equities relative to what would be recommended by most advisors for their current phase of life. In addition, 8% of retirement accounts had 100% in equities. Without knowing the details of each account holder’s personal situation, it is impossible to know just how far out of line those allocations are, but 100% in equities leaves little room for error and only makes sense in very few situations.

The chart below illustrates how long-term forward returns are impacted by select starting points, like the end of a bear market or the peak of a rally. We hope the 100%-in-equities crowd have anchored themselves on a number closer to the 5.9% annualized return stocks have delivered over the last 20 years rather than the 18.5% they have gifted us all over the last 10.

The chart below can be downloaded here.


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