I’ve posted Entry #51 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Few Investors Enjoy a Lifetime Stock Return as High as the Average Stock Return.
Juicy Excerpt: The vast majority of middle-class investors following Buy-and-Hold strategies will earn a return significantly less than the average return of 6.5 percent real. We don’t have data telling us the lifetime return earned by most investors. My guess is that the number is about half of the average return number. The typical investor probably earns a lifetime return on stocks of a little more than 3 percent real.
Middle-class people do not participate in the stock market to an equal extent at all time-periods. They own far more stocks at times when stocks are priced insanely high (and when long-term returns are sure to be shockingly low) than they do when stocks are priced fairly or better (and when long-term returns are high or shockingly high). How do I know? What else could cause returns to rise to such irrational heights than added demand from investors who participated only to a small extent or not at all in earlier days?
Middle-class investors go with high stock allocations when stocks are a poor investment and with low stock allocations when stocks are a good investment. Thus, their lifetime return is obviously much less than the average return.