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Heard Dave Ramsey speaking the other night on his growth mutual fund strategy and he mentioned reading one of his fund's prospectus and said this fund had a 78 year history and 11.94% average return over those 78 years.

Tried some searches but not sure how to find this specific fund. Anyone know any tools/tips to find this fund or other like it?

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Did you check his Archive at daveramsey.com/radio/home/#archives-tab or his podcast? –  mhoran_psprep Mar 13 '12 at 22:38

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up vote 19 down vote accepted

He was most likely talking about American Funds' mutual fund called The Investment Company of America. It lists January 1, 1934 as its inception date, which is just over 78 years ago. As shown at the link above, it lists its cumulative annualized returns as of December 31, 2011 to be 11.97% (not taking any loads into account). It does appear to be a relatively popular fund, with over 3.5 million shareholder accounts and over $50 billion in net assets.

The fund is targeted primarily at American large-cap equities, and is actively managed. Commensurate with that, its expenses are higher than index funds (the actual expense ratio and/or loads depend upon the share class that you choose; the above link shows information for class A shares, which carry a somewhat hefty front-end load); it's up to you to choose between a higher-cost, actively-managed fund (and hope that the managers are good at picking stocks) versus a low-cost indexing approach promoted by companies like Vanguard. You'll find people on both sides of that fence.

However, as JoeTaxpayer already pointed out, the average return of the market over the same time period was very similar, or even better (I'm not sure exactly how the calculator he referenced arrived at the number; the S&P 500 didn't exist in its current form until 1957), so it's not clear that the management of this fund has added value from a total return standpoint. Depending upon your risk appetite, however, it may be worth looking a bit deeper to compare the fund's volatility with that of the overall market; a similar return with lower volatility might be desirable.

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Thanks for the info and link. Very helpful answers from you and JoeTaxpayer. –  Valien Mar 17 '12 at 1:23
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Just an update on this. I was listening to his show the other day and he specifically mentioned he has investments in the American Funds group. So you were right on! –  Valien Feb 7 '13 at 14:16
    
For what it's worth, money chimp uses the data from Schiller. I'll check if Bob has a note how he produced numbers early on. –  JoeTaxpayer Aug 2 '13 at 3:59

First a disclaimer. The most difficult questions to answer are ones that ask what someone else was talking about with no solid quote.

But to give you some info - the MoneyChimp Compound Growth shows that from Jan 1, 1934 through Dec 31 2011, the S&P return was an average 12.14%, and the CAGR (compound growth rate) was 10.49.

Given that I've been invested in an S&P fund for my near 30 working years, and its expense ratio is .05%, I've seen a return of about 12.09% over that same period. So I find it unremarkable that some fund performed as well as this less another .17% or so.

You should also know the average and the CAGR are not the same. Simply put, an up 20% one year and down 10% the next is an average 5% return, but 3.9% CAGR. (1.2 * .9 is 1.08, and 1.039*1.039 is the same 1.08)

All that said, there is no guarantee the future returns will mimic the past. If you count on 12%/yr (or 10 for that matter) you will under-calculate the lump sum needed to retire 40 years hence and worse, risk not reaching that goal. But. Plan for 6-8%, as as you get closer you'll be able to easily adjust savings down to not retire with "too much." Waking up to find you're 55 and are 20 years away from the savings goal is "bad."

I probably answered the question I heard rather than the one you asked. I hope you learned something useful nonetheless.

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I care more about my potential returns in the investment market as it relates to my retirement. As you mentioned your "working years", it makes me wonder why financial advisors don't calculate returns based on the "working years" only. For example, if I invest in a 401k from age 25 to 65, I'm mostly interested in my return performance for 40 years, not the totality of the stock market. –  sunk818 Jul 28 at 16:52

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