When I look at my 401(k) account I see these numbers (among others):
Date of inception: 1/31/2002
Return since inception: 6.10%
Return for past 10 years: 9.50%
Now, you may notice that it has been 10 years and 8 months from inception to the end of the last full month, which is when these percent return numbers were last calculated.
My question is: what could account for the large difference in return between 10 years and 10 years 8 months? Can you concoct a scenario that would have that result?
Is this a math question? Or is it something else?
Roddy
The 10 year and 8 month return (return since inception) is lower than the 10 year return (return for the past 10 years). This means something bad from an investing perspective must have happened during those eight months.
A quick check to Yahoo! Finance shows that the S&P 500 Index (a measure of U.S. equity markets) was down almost 20% from January 31, 2002 to October 31, 2002 (i.e., it had negative returns). This bad period is not included in the 10 year return, so depending on what you were invested in at various points in time the figures could makes sense.
Think of it like adding up a list of numbers. For example, -10, +8, +3, -2, +5. If you take away the first number (which happens to be a big negative number) the total gets larger.
I hope this helps.