BLOG 135 – Average Returns Are a Lie Your 401(k) Statement Tells Every Year
Your financial advisor has probably shown you a chart. It shows the historical average annual return of the stock market — somewhere between 7% and 10% depending on the time period chosen — and uses that number to project what your 401(k) will be worth at retirement. That projection is not wrong in the way a calculation error is wrong. It is wrong in the way a question can be wrong — because it is answering something that does not actually determine your financial outcome. The average return on your portfolio does not tell you what you will have in retirement. The sequence of those returns does. And those are two completely different numbers.