What Return Should I Expect from My Portfolio?

Marshall Rathmell |

Now, that’s an excellent question! What return should you expect from your portfolio? I could give you a song and dance about predictions and fluctuations. But instead, I’ll take you to a Lakers game.

I’ve got 2 tickets to the Lakers game, and LeBron James is playing. But before we go, you ask “What score should I expect from LeBron?” So, to answer that, let’s look at his game stats.

  • Previously played 1206 games.
  • Points per game 27.2
  • Rebounds per game 7.4
  • Assists per game 7.2

So, based on his 1206 previous games, what we should be able to expect is a (rounded) 27/7/7 game.

Guess how often that’s happened!

In his entire 1206 game history, LeBron James has NEVER had an “average” game. Yeah, never. So, although these numbers give us the picture that he is a “good performer,” we still have no idea what to expect.

Now let’s look at the S&P 500 to answer that question about your portfolio.

  • Previously traded 93 years.
  • Negative growth years 25.
  • Positive growth years 68.
  • Annualized average return of 10%.

Guess how often the actual growth has been 10%?

As you can see the 8-10% column has never been used.

So, to answer your question about what you should expect from your portfolio, I want to offer some simple advice.

Treat your portfolio like the Lakers game. Find a good player and then let them play their game.

-Marshall Rathmell-