101 Foundation
Financial Classroom
101: Foundation
What are the average returns based on a client’s risk?
Since the last crash in 2008, everyone’s been content to be making money. But the difference in a comfortable retirement and one that relies on Social Security raises can be as little as 1% per year more than other investors with your similar risk tolerance. Here are the yearly returns for the S&P 500 and generic portfolios generally associated with client risk tolerance.
| S&P 500 | Aggressive | Moderate | Conservative | |
|---|---|---|---|---|
| 2007 | 0.00% | 0.00% | 0.00% | 0.00% |
| 2008 | -37.00% | -30.66% | -24.75% | -9.32% |
| 2009 | 26.26% | 32.34% | 23.79% | 14.31% |
| 2010 | 15.06% | 14.97% | 13.95% | 8.91% |
| 2011 | 2.11% | -2.47% | .28% | 1.49% |
| 2012 | 16.00% | 13.35% | 11.24% | 6.66% |
| 2013 | 32.39% | 14.62% | 14.62% | 11.24% |
| 2014 | 13.69% | 3.86% | 5.35% | 2.89% |
| 2015 | 1.38% | -3.53% | -1.21% | -1.66% |
| 2016 | 11.96% | 9.61% | 7.67% | 4.90% |
| 2017 | 21.83% | 19.93% | 15.15% | 6.79% |
| TOTAL | 125.99% | 76.08% | 75.13% | 54.10% |
| AVERAGE | 10.39% | 7.20% | 6.61% | 4.62% |
Now let’s take a look at what happens to $100,000 invested.
| S&P 500 | Aggressive | Moderate | Conservative | |
|---|---|---|---|---|
| 2007 | $100,000.00 | $100,000.00 | $100,000.00 | $100,000.00 |
| 2008 | $63,000.00 | $63,340.00 | $75,250.00 | $90,680.00 |
| 2009 | $79,669.80 | $91,764.56 | $93,151,98 | $103,665.38 |
| 2010 | $91,668.07 | $105,501.71 | $106,146.68 | $112,901.96 |
| 2011 | $93,602.27 | $102,895.82 | $106,443.89 | $114,584.20 |
| 2012 | $108,578.63 | $116,632.41 | $118,408.18 | $122,215.51 |
| 2013 | $143,747.25 | $133,684.07 | $135,719.45 | $135,952.53 |
| 2014 | $163,426.25 | $138,844.27 | $142,980.45 | $139,881.56 |
| 2015 | $165,681.53 | $133,943.07 | $141,250.38 | $137,559.53 |
| 2016 | $185,497.04 | $146,815.00 | $152,084.29 | $144,299.94 |
| 2017 | $225,991.05 | $176,075.23 | $175,125.06 | $154,097.91 |
The difference from S&P 500 to Conservative risk is $71,893.14 over just the last 10 years!
Also, notice that the Aggressive risk tolerance didn’t catch up with the conservative until 2016, nearly 8 years into one of the longest bull markets in US history.
Given your risk tolerance, how is your portfolio stacking up to these benchmarks?
Which risk tolerance should you be? Better yet, why not aim for a target rate of return and minimize the volatility?
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