Skip to main content

How and When to be Average Joe or Average Jane


Most people fall in the so-called “average” or “median” range. After all things are counted and considered, the statistical middle-ground is where all things tend to gravitate – the world of the, sorry for the term: mediocre.

To be honest, no one wants to be mediocre, run-of-the-mill or commonplace. People in the city park may take selfies that are quite ordinary compared to people who challenge the heights of the Nepalese mountains or the Alaskan wilderness. People do not just want a few likes but viral likes, so it seems. We want to be among those who make an impression for being extraordinary. And that takes a lot of effort to achieve and sustain.

But as investors, the average can provide a lot of benefits.

The idea of being average is the very foundation of the biggest changes to investing in recent years – the surge of the passive index fund.

In the past, you (or a broker) selected a portfolio of stocks that has the potential to bring you wealth. The more adventurous investors opted for a chance to benchmark themselves (while the newspapers aimed for a chance to "score" the stock market). That gave birth to the index.

One possible choice is the ASX 200, which tracks the overall market performance, giving investors a view on how the total market value shifts in a day, a week, a month or a year. It is expected to rise by about 10% yearly, within a long-term period.

And, obviously, we are talking of averages -- the average firm and the average year. Choosing to buy an index-tracking fund, as investors usually do as a rule, is quite alright. You can expect to gain average return (minus some fees) over a long duration, enough to produce a sizeable profit in the end.

However, do not expect to get 10% yearly. Moreover, not all firms will gain a value growth by such an amount. Some can go broke. Others come up with the latest “hot product”. Some may exploit the advantages of their product and market, to offer years of market-crunching returns (for instance, Domino's share price). And there are also those that remain stagnant for ten years (check out Westfield).

The market can spiral downward sometimes. We all know how the last global financial meltdown brought the market down by over half its value from late 2007 to early 2009. That occurred after it had doubled in value from 2003 to 2007.

The idea of "average" provides a restful, promising relief for investors, which may not be absolutely true. Nevertheless, that is no reason to avoid it; for a 10% annual return across 30 years will convert an investment of $100,000 into $1.74 million.

So it is with real estate properties -- the quoted prices are national averages, which include stellar Sydney and lagging Perth and Darwin. At the very least, they are city-level average prices, such as those of inner- city apartments, harbourside mansions and suburban residential projects, everything that is traded in the market in a year.

Furthermore, for both assets and real property, the quoted prices reflect only those that actually moved from one hand to another and not the bulk of assets that were kept in a private safe or properties still in use by their happy owners.

Although it is not wise to be foolhardy, the average point (where half of the data is either above or below) presents a totally different picture. You need more than luck to get over the average-trap. Hence, if you can succeed in "buying" the average – that is, by using an index fund – you made the right initial step. Just remember that it will require big challenges along the way, whether you do buy or not.

Popular posts from this blog

Savings: Where to earn the best interest on your money right now

If one of your New Year's resolutions is to grow your savings, one smart strategy is to keep your money in an account earning the most interest.
The Federal Reserve has been slow to raise interest rates, and even recent hikes haven't trickled down to consumers in the form of better savings yields. The average savings account offers a paltry 0.19% annual return, only slightly better than a year ago, according to Deposit Accounts.
Some experts say that money could grow faster at online banks. Some CDs, or certificates of deposit, are also more generous than others.
"If you're not seeking out the best returns on savings accounts and CDs, you're leaving money on the table," said Greg McBride, chief financial analyst at Bankrate.com. "It's the only place in the investment universe where you can get extra returns without extra risks."
These accounts are protected by the Federal Deposit Insurance Corporation, a government agency that provides deposit i…

The only way to save money has always been the same — and you can't do it without making a key distinction

While a bad economy or an especially low-paying job can make saving money infinitely harder, the formula for saving has always been the same. To save money, you need to spend less than you earn.
Obviously, this task becomes a lot easier when you earn more than average – or if you live in a low-cost area. If you have a six-figure income and live in Arkansas, for example, you should absolutely be socking some money away. On the flip side, someone living on the same salary in an expensive city like New York City, Boston, or San Francisco might not have much if anything left over after covering basic expenses like housing, food, and childcare.
But, no matter your income or where you live, you have to find a way to spend less than you earn if you hope to save money to retire, have some fun, and avoid debt. You can get a side hustle or a part-time job if you want, but if you don't spend less than you bring home, you're always going to struggle.
That's why it's important to …

Make Your Investing Resolutions Reality in 2018

These six New Year's resolutions will give your investment portfolio a boost in 2018, deliver long-lasting rewards and require neither spandex nor excessive amounts of kale.
It’ll be nearly impossible to find an open treadmill at your local gym come January. By March? Everything’s back to normal again.
Welcome to the season of good intentions. Many people will start 2018 with a New Year’s resolution like exercising more or losing weight, only to abandon it within weeks.
Sound familiar? Even if you haven’t succeeded in the past, 2018 can be different. (No, really!) If you’re unsure where to begin and would like to start with some quick wins, how about your investment portfolio?
Investing resolutions can reap long-lasting rewards and require neither spandex nor excessive amounts of kale. Pick and choose from the following investing resolutions, or go ahead and tackle the entire list.
Save more (and invest it)
Spending less and saving more is a noble resolution, but here’s some bad ne…