Past performance is not indicative of future returns.

Jan 30, 2012 by

E-mails from financial services companies often end with the tagline, “past performance is not indicative of future returns.” Nonetheless, there are many people whom have held up the 5-10% average annual return of American stock market indices to argue that this is not the case. This contradiction is often escaped by suggesting that averaging performance creates more stability. While the American stock indices have been a good investment, this is not an international truth.

Here is the performance of the Dow Jones Industrial Average


The S&P 500 Index

Things, however, looked quite a bit different in Japan. The overall economic climate in Japan has not enabled the country to recover since its crash in the 1980s. Needless to say, the Japanese stock market has not been a great investment over the past 20 years.

Here is the performance of Japan’s Nikkei 225

The case of the Nikkei may be an extreme, but it exists as a distinct possibility. Throwing a few more countries into the mix of observations may enhance our perspective:

Austria – ATX

Brazil – Ibovespa

Europe – FTSE 100

Germany – DAX

Hong Kong – Hang Seng

India – Bombay Sensex

Korea – KOSPI

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