We’ve all heard about market averages. In the US, the big ones are the Dow-Jones Industrial Average, the S&P 500, and in Canada, we have the TSX. There are many other stock market averages as well.
However, most investors get significantly worse results than these averages. There are many reasons for this: paying higher brokerage fees, paying high fees to investment advisors, paying high taxes due to overtrading, etc.
Even when investors buy index funds that are designed to track a market average, they often underperform the average because of failed attempts to time the market; in trying to avoid market drops, they miss market increases.
For these reasons, I think that “market averages” are misnamed. If you buy a stock index and hold on for two decades, you will get much higher than average results.
Another problem with the word “average” here is that it turns off investors. Who wants to be average? Who doesn’t think he can do better than average? Maybe we should call the returns of indexes the “index high bar”.
Some people would still try to beat the high bar, but most could comfortably say at a party “I decided to take the market high bar and devote my free time to other pursuits rather than evaluating stocks all the time.”