The investment industry never misses an opportunity to take credit for outstanding performance. In fact, many mutual fund providers crow about their returns even when they’re mediocre or downright bad compared to appropriate benchmarks. One of my recent favorites was an ad that read: “Over the 1-year period, 91% of Trimark global equity funds returned 10% or more.” This is touted as an impressive accomplishment, but during this one-year period (ending September 30, 2013), the MSCI World Index was up over 21%. An actively managed global equity fund that returned even 15% would have been an absolute dog.
The recent performance of my model portfolios has been excellent: in 2013, the humble Global Couch Potato returned more than 15%, and over the last five years, a balanced index portfolio could easily have achieved 10% annualized returns. But if you’re a passive investor, it’s important to understand this performance simply reflects that we’ve enjoyed a five-year bull market in stocks—not to mention five years of bond returns that were higher than most people expected. Unlike the proud fund managers at Trimark, indexers shouldn’t take credit personally—except to pat themselves on the back for building a diversified portfolio and staying invested.