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For the first time in my life I'm looking into where to put my money and I came across index funds. I find it very suspicious that:

  • whatever index fund I come across, the history never goes back to before 2010.
  • the return rates are super high.

For example, I set this one to Frankfurt to get a comparatively long history. The oldest data point is about 9.4 years back at 16.53 eur, and latest one is 51.73 eur. Does this really mean that people who just put their money there 9.4 years ago made annual returns of 12.9%?

Or is the second number much higher for a different reason? For example, because it represent how much money there is in the fund and people have been putting additional money in over the years, so the return rate is much lower?

What return rates are reasonable to be expected in the long run?

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    You seem to be looking for information in odd placed. A quick glance at Vanguard mutual funds list reveals quite a few of them starting in the 70s and 80s. And that's just one link I happened to have handy. – void_ptr Sep 2 at 18:33
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    A bank could also ax funds that are under performing, and keep those that float. it's just a selection effect. – Quora Feans Sep 3 at 0:40
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    It is all about the point of entry. It makes a huge difference when one build their portfolio during a dip or not. However, since nobody can predict the market, patiently apply the average price strategy is what prudent investor will do. – mootmoot Sep 3 at 8:03
  • Index funds don't have to track stocks. They can also track bonds, and bonds in stable economies definitely don't yield 10%. – RonJohn Sep 3 at 18:43
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The US* and the rest of the world suffered a severe bear market in 2008-09. The very high returns in the years immediately after that represent the recovery from that market collapse (some of my own funds had a year or two of 20% or better returns).

If you can't get older data for funds, try looking at general indexes (DJIA, S&P 500, etc.). For the US market as a whole, the long-term average return has been about 7% after inflation.

*I don't speak German, so can't say why your link shows the figures that it does.

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    Thank you for that 6–7% figure. That crash is the reason I really want data that's dating a few years further back. Are (index) funds typically discontinued and replaced by new ones after a market crash to fool people into thinking the funds the company offers have always been doing great? – UTF-8 Sep 2 at 18:06
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    @UTF - No, index funds are not discontinued and replaced in order to inflate returns and deceive people. Most likely, either the funds you are looking have a limited amount of data because they were started in recent years or the data provider is not giving you the entire historical data set. – Bob Baerker Sep 2 at 22:42
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    @UTF-8: Don't know about German funds. In the US, I've been invested in some of the same funds (with Vanguard & T. Rowe Price) since the 1980s. If you're just getting data from the company web site, it's IMHO much more likely a case of the web site being designed for the lowest common denominator :-( – jamesqf Sep 3 at 4:17
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    This is the correct answer. Further reading: New York Times: A Quirk of the Calendar Is Messing With Stocks nyti.ms/2Hb9Rjm – Geier Sep 3 at 8:36
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    @UTF-8 No, the reason most index funds do not have performance data from before the crash is that exchange-traded index funds are a fairly recent innovation in financial markets, and did not have widespread adoption before the crisis. By count, the vast majority of index funds were founded in the last few years. Try not to assume malice when you are a novice; your ignorance of the markets means that on average, the explanation is something completely benign with which you are unfamiliar due to inexperience. – David Sep 3 at 17:45
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As you seem to be located in Germany, here is a more Germany-based answer:

The DAI (Deutsches Aktieninstitut, roughly "German Share Institute") provides some so-called "Renditedreiecke" ("return triangles") (English link, German link).

The show you how much return you make after holding a certain index (in their case the DAX) for a long time. They differentiate between one-time savings and continuous saving plans.

If we take your numbers (start in 2010), we see:

  • in the case of a one-time investment, you have a return of 5.4%, while for a saving plan started in 2010, you have a return of 3.6%.

They are different from the S&P for a variety of reasons (different index, probably added the currency differences, etc.)

But if we look further to the past, we see:

  • Start in 2008, return is 8.4% resp. 5.4% – there we have the full recoveryfrom the crash.
  • Start in 2007, return is 2.5% resp. 5.3% – so the losses of 2007 take a big cut, but are compensated in the long run
  • Start in 1998, return is 3.8% resp. 5.1% – so the losses of both 1999…2001 and 2007 are compensated in the long run.

Note that they focus here on one index, not on a fund, but a fund which tries to be replicate a given index should (more or less) perform the same as this index.

2

It depends on what you call long run and what index you invest in. One of the most well known indexes, the S&P 500 has 25 year annualized returns of between 9% and 17% with a median return of 12% since 1970 (not taking inflation into account). see this link for more information.

2

Yes, Brexit notwithstanding, we've had a nice solid economic boom for the last 9-10 years, so those numbers are not averaged across any recessions. *That may be why those ETFs were started then - it's possible they folded up other ETFs so they could start new ones with fantastic numbers like this.

What to expect: the nonprofit view

A nonprofit (not-for-dividend) "endowment" is when someone donates a large chunk of capital, and it's to be invested forever, sustainably to keep up with inflation. The excess is to be drawn down in a prudent manner, and it funds various programs - such as a named "chair" at a university. There is strict law as to how endowments must be invested. They are not allowed to sit idle in money market funds or bonds - they must be in the market at least 60-80%.

Prudence is the key. If you have a 35% market upturn in a year, you are not allowed to spend the whole 35% - you must put those acorns away for a future downturn! On the other hand, in a downturn, you're still allowed to spend the normal amount of money. (Super important if your mission is to help the indigent!!) All in all, 4-7% a year drawdown is presumed to be "prudent" - anything else, you'll need to explain yourself! That is my experience as an endowment manager through the last recession.

So as a rule, I expect index funds to yield 7% + inflation over the very long term.

The real place value is found

I get you're looking at past returns while looking at funds. That's not quite what to look for. The #1 risk in an index fund is the guaranteed losses of the expense ratios and loads - the entry, exit and annual/continuous fees they charge you to be in the investment.

As far as comparing returns, it doesn't help to compare them absolutely -- and you're right, ones that started 9 years ago will compare very favorably to ones that have existed for longer and ridden through recessions. That means nothing, as you surmised.

What matters is the performace of the fund relative to the performance of the index it seeks to track. If an S&P 500 fund loses 1.5% a year compared to the S&P 500, it's got a problem. Where do those problems come from? Internal fund expenses, which are guaranteed loss for the investor. As such, keep them minimized.

  • Expense ratio, or the management costs they charge you to have your money in the fund. A common managed fund (and many index funds!) charge 1.5% per year, which pays the "genius stock picker" and his staff. They are marketed to "sucker" customers who let their broker pick their investments. Index funds can (don't necessarily do) reduce expense ratio dramatically, because an index fund is simply synchronised with the index, and an intern can do that. Vanguard index funds charge as little as 0.04% expense ratio.
  • Sales loads - such as front-end loads, which can be 5.5% of the investment. Invest $10,000, the very next day you have $9450. Seriously. This goes to sales commission for the broker. There are other loads, such as back-end loads, payable when you sell. Some funds are no-load. You should buy only those.

With ETFs, the expense ratio is built in to the trading value of the fund. In a perfect world, an ETF will underperform the index by exactly their expense ratio.

So when selecting funds, start at "loads" and "expense ratio". Then compare their performance to the performance of the index.

1

As has been said, the recession of 2008 and 2009 is not considered in your datapoints, so you only see the good times. As for your specific example fund, it tracks the MSCI-World index. For long term performance, you can check out MSCI or e.g. Wikipedia, which shows the index performance until 1970.

Other than the inflation adjustment (i.e. the 7% mentioned by jamesqf), you may also still consider:

  • currency fluctuation (the example fund runs in USD, not EURO),
  • possible dividends (and whether they are accumulating or paid out. This had, until recently, tax implications in Germany)
  • costs (one of the often cited big advantages of many index funds are their low costs compared to actively managed funds. This can easily be a difference of 1-2%, which is also why your bank may not like to sell you index funds as it cuts into their profit margin)
  • tracking error (how much does the actual fund diverge from the index)

Not all index funds perform equally on those parameters, even if they track the same index. A german index fund comparison can, for instance, be found in the monthly magazine finanztest.

1

The short answer to your questions is that:

  1. As their name implies, Index Funds track a well known stock index. They will have good returns in the years that the underlying indexes have good returns and poor returns in the years that the underlying indexes have poor returns.
  2. The particular fund that you linked to has an inception date of September 25 2009, so it won't have performance data prior to that date. In some cases, you can identify the index that the fund tracks and determine the index's performance prior to the existence of the fund.
  3. Over the long run, their return will generally match the overall stock market, or the portion of it that your chosen index represents. (e.g. for funds that focus on a specific sector or economic region.)

As other people have pointed out, the US economy has had roughly 10 years of steady economic expansion since the last recession, so it's pretty easy to find funds that have performed well for the past ten years. As to why you have only been able to find funds with 10 years of history or less, that requires a little bit of speculation based on the information you have provided.

The fund that you linked to is an ETF, or Exchange Traded Fund. (This is generally what people are referring to when they say 'index funds', but many passively managed mutual funds could also be called index funds.) Roughly speaking, you can buy and sell ETFs like a stock, and although you pay a commission on the sale, you won't pay ongoing management fees. This means that they have many of the same performance characteristics of passively managed mutual funds, but theoretically perform slightly better over time due to not losing profits to management fees.

Relatively speaking, ETFs are new to the investment scene. The first ETF was created in 1993, but as far as I am aware they started becoming more popular with investors in the late 90's to early 2000's. This means that even the longest lived ETFs only have ~20 years of performance history available, while a traditional mutual fund from e.g. Vanguard could easily have 40 years of history or more.

In particular, iShares in it's current form was spun off of Barclays in 2009, so if you have been specifically looking at iShares ETFs, it wouldn't be too surprising to find that a lot of them were created in or after 2009. There are other ETF providers (SPDR and ProShares off the top of my head) that should have funds with much longer history.

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