Calculator Investments

Ten-Year Risk and Return of Several Popular Indexes

Calculator Investments

Asset allocation is certainly no simple task, but it's a little easier for passive investors as far as choosing funds. The reason is that indexers aren't concerned with finding the best manager in an asset class - they simply invest in the index fund or ETF that covers the asset class and move on. However, there are some decisions to be made because there are usually several indexes that cover an asset class. To help sort things out a little, we went into Morningstar's index database and looked at ten-year returns and standard deviations of many popular indexes and listed them below by size (small, mid, and large).

Standard deviation tells an investor how widely the index returns fluctuated over the 10-year period. A higher standard deviation implies more volatility and risk.

Large Cap Indexes
Index
Std. dev. - 10 yrs.
10 yr. ret.
15 yr. ret.
Barra Large Cap Growth
18.19
12.70%
13.09%
Barra Large Cap Value
15.50
12.79%
11.82%
Dow Jones Large Growth
22.32
10.18%
11.20%
Dow Jones Large Value
14.12
13.01%
12.35%
Russell 1000
15.96
12.85%
12.53%
Russell 1000 Growth
20.46
10.87%
11.86%
Russell 1000 Value
14.63
14.05%
12.60%
Standard & Poor's 500
15.80
12.97%
12.67%
Wilshire Large Cap 750
16.18
12.48%
12.34%
Wilshire Large Growth
20.06
10.74%
11.65%
Wilshire Large Value
15.17
12.98%
12.14%

*Source: Morningstar data as of 1/31/2002, annualized returns[/:Author:]

Mid Cap Indexes
Index
Std. dev. - 10 yrs.
10 yr. ret.
15 yr. ret.
Barra MidCap Growth
24.30
14.32%
-
Barra MidCap Value
16.47
14.88%
-
Dow Jones Midcap Growth
28.30
11.05%
10.78%
Dow Jones Midcap Value
14.98
13.03%
12.86%
Russell Midcap Growth
26.05
10.64%
11.59%
Russell Midcap Value
14.62
14.24%
12.76%
S&P Midcap 400
18.75
14.74%
15.01%
Wilshire 4500
21.77
10.06%
10.27%
Wilshire Mid Cap 500
18.95
13.52%
12.80%
Wilshire Midcap Growth
26.35
10.63%
11.27%
Wilshire Midcap Value
15.61
14.61%
13.12%

*Source: Morningstar data as of 1/31/2002, annualized returns[/:Author:]

Small Cap Indexes
Index
Std. dev. - 10 yrs.
10 yr. ret.
15 yr. ret.
Dow Jones Small Growth
30.62
10.85%
10.90%
Dow Jones Small Value
14.70
13.75%
13.20%
Russell 2000
20.14
10.53%
9.87%
Russell 2000 Growth
26.95
5.99%
7.02%
Russell 2000 Value
14.79
14.34%
12.19%
S&P Smallcap 600
19.88
12.87%
10.29%
Wilshire Small Cap 1750
20.25
11.81%
10.86%
Wilshire Small Growth
27.47
7.25%
8.12%
Wilshire Small Value
15.91
14.36%
12.19%

*Source: Morningstar data as of 1/31/2002, annualized returns

Finally, here's similar data for two broad total market indexes, as well some numbers for a REIT index and an international index - the broad MSCI EAFE.

Index
Std. dev. - 10 yrs.
10 yr. ret.
15 yr. ret.
Russell 3000
15.85
12.58%
12.27%
Wilshire 5000
16.14
12.16%
12.00%
Wilshire REIT
14.01
11.01%
7.76%
MSCI EAFE
15.13
4.76%
3.55%

*Source: Morningstar data as of 1/31/2002

So there's some index data to chew on when you're making your asset allocation calls, although there are a few caveats. The first is that these numbers are based on past returns, and as such they're no guarantee of future results, as they say. However, many investors use past performance and volatility as a guide to form reasonable expectations when making portfolio allocation decisions. Using the past to extrapolate future returns is by all accounts a dangerous game, but many economists believe historical data is a little more useful in the context of quantifying risk and volatility.

It should be duly noted that the 1990s showed us one of the most exuberant bull markets in U.S. history, and the returns data above back that statement up. In other words, don't count on returns like this because history shows they are not the norm. Many respected economists and investors, including John Bogle, have said that a more realistic expectation for the return on equities over the next few years might be somewhere in the neighborhood of 6 percent annually.

Also, no investor should make asset allocation decisions based solely on asset class risk and returns, but we did think it would be nice to have that index data in one place for convenience.