The Anna Maria Island Sun Newspaper

Vol. 15 No. 10 - December 31, 2014


Anna Maria Island Sun News Story

An unusual average year

Investment Corner

We often like to use the chart below to illustrate how the average return investors expect for stocks, generally anticipated at 8 to 10 percent a year over longer periods of time doesn’t often translate into that same level of performance in most years.

In other words, the long term averages are developed through a wide disparity of returns, both positive and negative, that more often than not fall outside of the normal range. Our approach to this is to take the expected return of about 10 percent per year and to then define 10 percent bands of +5 percent and -5 percent around that expectation. So, a return between 5 percent and 15 percent for a particular year would be considered normal. Returns further away from normal are grouped into 10 percent bands, both in the positive and negative directions.

The result is a little surprising to most. Since 1950, there are far more years with results outside of the normal expectation than in the middle band surrounding the norm. In fact, only 23 percent of these years were close to the long-term expected rate of return.

The takeaway is that investors should be prepared for results on a yearly basis that are abnormal, both in the positive and negative direction, while they pursue their long-term investment goals.

2014 turned out to be a year in which returns for the major stock indexes were in that long-term average range, with the Dow Jones Industrial Average and the S&P 500 Index providing returns in the +5 to +15 percent band.

2014 was unusual in some other ways though. There was a wide disparity in the returns achieved by sub-categories of different asset classes. For example, large cap stocks in general posted returns of over 10 percent, but smaller companies struggled this year after leading the markets higher for the two previous years. High quality bonds had a very good year in 2014, but higher yielding corporate bonds had sub-par performance.

International stock markets struggled and provided negative results in general, although as already discussed, the U.S. market did quite well. At some point in the future the domination of U.S. stocks will reverse, but there doesn’t seem to be any indication yet that this trend change is imminent.

I hope you have a great year as an investor in 2015. Stick with sound investment principles, don’t be distracted by short-term noise from the financial media, and you should do fine.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit