Amazing Investment Returns Earned by Prudent Americans

After the U.S. stock markets marched along at 17.5% annually from 1982 to 2000, most people knew that it would take a breather at some point. 

To put that growth in perspective, if you had invested $10,000 in a U.S. index fund, in 1982, it would have been worth more than $182,000—just 18 years later.

For the vast majority of investors in actively managed funds during that time frame, those results would look like a fantasy, instead of a historical reality.  A simple buy and hold strategy in a U.S. index fund would have earned that return.  Yet the average investor would have lagged those results while their financial advisors waxed poetically about how well they were doing.

We all know that the greatest statistical chance of stock market success comes from owning a variety of indexes, representing different asset classes and countries.

If an American invested responsibly (with low costs and diversification) since the year 2000, how would their money have fared, if they didn’t add a penny to their account?

I have some American friends who haven’t made a penny in the past decade.  They’ve made a bundle, lost a bundle, then made a bundle and lost a bundle, but overall, they haven’t recorded a net gain on their investments in more than a decade.  That’s a shame.  They could have made a killing.

When an American friend of mine recently asked me what a decent investment return would have been from 2001 to March, 2011, I honestly didn’t know, off the top of my head.  As a Canadian, I measure my investment results in Canadian dollars.

But I wanted to find out for him.

Logging on to the Assetbuilder website I wanted to see what a collection of portfolios comprised of low cost Dimensional Fund Advisor indexes would have done since 2001.  I wanted to use the DFA index funds for a reason, instead of tracking a basket of Vanguard funds.

The DFA indexes are used by Assetbuilder, a company that compiles the indexes into portfolios that they rebalance for each of their clients.  It gives each client a maximum amount of diversification and they don’t have to lift a finger.

Their portfolios range from conservative–with very little exposure to the stock markets–to higher risk portfolios, with greater exposure to the markets.  Here are a couple examples, before I show you the entire racing stable:

 This portfolio is mostly balanced between stock indexes and bond indexes.  For a 50 year old who doesn’t expect a corporate pension, I think this level of conservatism is perfect.  But how would that portfolio have performed from 2001 to February 2011?

Don’t tell your friends who are mired in expensive, actively managed mutual funds.  This portfolio gained +144% during this time period.

More suitable for a younger investor, this portfolio of DFA index funds has just 26% in bonds.  I think it’s fine for a 25 to 30 year old investor.  So how did it perform from 2001 to February, 2011?  It gained +192%.

Here’s a complete list of nine Assetbuilder indexed portfolios, along with their performances over the past decade.  I’m starting with the most conservative portfolio (portfolio 6)  and ending with the riskiest portfolio (portfolio 14). 

Nine Assetbuilder Portfolios:

 Asset Builder Growth of Wealth chart

see all the info -- click this chart

  You can see every one of Assetbuilder’s indexed portfolio performances here.

 What’s especially remarkable about these results?

Some people have referred to the past 10 years as “the lost decade”…due to the poor results earned from the world’s stock markets.  And we’ve certainly seen our share of crashes, rises, and crashes during the past 10 years.

But responsible rebalanced portfolios of indexes have proven to weather the storm, and leave most investors and their self-serving advisors miles behind.

You can find advisors who’ll build portfolios of DFA (or Vanguard) index funds for you.   These are the angels of the industry. 

 Seek them out.  Then advise your friends to do the same.  They can’t afford not to. 


Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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9 Responses

  1. Just to clarify:

    Assetbuilder rebalances each of their portfolios on March 1st of each year.

    Each indexed portfolio is comprised of international indexes, U.S. indexes, Real estate income trust indexes and commodities indexes. Stock market indexes tend to be more dominant in these portfolios than the alternate classes of REITS and commodities.

    Assetbuilder has backtested their mechanically balanced portfolios (which is what you are seeing here).

    They make no portfolio decisions to overweight one sector over another, based on economic news, interest rates etc. Their models are based on keeping a low cost, diversified model, and sticking to it regardless of what the economy is doing. There is no fund manager, in other words, jumping the money around from index to index, based on their "predictions"

    When rebalancing a simpler portfolio of a total U.S. stock market index, a total international stock market index, and a total bond market index, I found that such a portfolio, in U.S. dollars, gained slighly more than 100% over the previous decade, despite the fact that each of these three indexes made less than that, independently. The annual rebalancing, during the past decade (which was a volatile decade for stocks) would have had a positive effect on results.

    That said, although rebalancing annually can smooth out the bumps, it won't always be a way of outperforming a single stock market index fund. For example, these Assetbuilder portfolios could underperform a single, simple stock market index over the next decade.

    But keeping costs low, with indexes, and diversifying over (at least) stocks and bonds, will ensure a high chance of future success, and much lower volatility than what a single stock market index would provide.

    It should also be noted that the U.S. dollar has fallen a lot over the past decade (overall) so the international indexes significantly juiced these returns based on their currencies, related to the slumping greenback. Don't forget that these returns are posted in U.S. dollars.

  2. DIY Investor says:

    Stunning returns!

    I have to admit I was amazed that all the portfolios were in exactly the same spot on 3/9/2008. I am not sure how that can be.

    • Hey Robert,

      Could it be the rise in commodities and the sinking of the greenback? It would be interesting to ask Scott Burns (the founder of Assetbuilder) about it. From my experience, he's a real gent and a very straightforward guy.

  3. Very impressive! I too noticed how all the scenarios bottom out at the same level.

    There is very little cross over between the scenarios. Why would a 50 year old pick portfolio #6 over #14 when you look at the graphs. They all bottom out at the same place but there is more upswing with #14. What's to lose? Just looking at the graph and putting aside the theories about what a bond allocation and risk should be. I would have expected #14 to swing below others …

    I tried playing with the settings but I can't go back further than 2000. What happens if you go back to 1980? Is there cross over between the portfolios?

  4. Hey Passive,

    My guess is that the chart itself might not be accurate. You're absolutely right. The conservative funds shouldn't (and didn't, I'm sure) drop as low as the riskier funds during the decline of 2008/2009. But the dollar results at the end are likely accurate. I'm going to have a look at the original assetbuilder site to see if converting it to the blog didn't just squish everything together.

    Thanks for noticing that!

  5. Jean says:

    Andrew, et al, try this out. Click on the Growth of Wealth chart above and then, on the settings before you, change the start date to March 1, 2006. When you see it 'blown up' over the past five years, you'll see the results a bit differently. Does this help in pursuit of your answers?

  6. Yes! Now it makes more sense. The portfolio do cross over based on risk.


  7. TS says:

    Hi Andrew,

    How often would you recommend someone re-balancing the mix of bond and equity index funds?



  8. Hey TS,

    I don't think you need to rebalance more than once a year. That said, if the markets go crazy, and fall by 30% mid-year or rise by 30% mid-year (these things can happen) then you can rebalance then, if you choose. I rebalanced mid 2009 when the markets were really low.

    That said, you could also just buy the lagging index every month, ensuring that you rebalance without selling anything. It's more tax-efficient to do that. This is the strategy I use, unless, which I mentioned, the markets go haywire. Then I have to manually adjust.

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