Scan the results in the table below and the phrase "lies, damn lies and statistics" might come to mind. How, you may wonder, can the three-year returns be so spectacular and so many of the one- and five-year figures be so mediocre?
The answer has to do with the timing of these numbers. The results are through March 9, three years to the day since the 2007-09 bear market hit bottom. That means all of the cataclysm's declines (including a 25% drop in early 2009) have been removed from the three-year data. Instead of being dragged down by the bear market, the calculations now reflect a bull market during which U.S. stocks more than doubled in value, a rebound that even the past year's stumble could not dent.
Timing explains the poor five-year numbers, too. Those results incorporate a so-so 2007 and a disastrous 2008, during which the typical U.S. stock fund lost nearly 40%. If a fund lost that much at the outset, it needed to earn nearly 70% just to break even. Even if a fund doubles after first losing 40%, its gain is just 20%. Spread out over five years, that amounts to an annualized return of just 3.7%.
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Oh, and here's some other funny math to look forward to: Barring a steep drop in stocks over the rest of 2012, the lost decade for investors won't seem so lost by year-end. That's because the tenth anniversary of the bottom of the 2000–02 bear market is on October 9. At that point, the market's 32% loss in 2002 through that date will no longer show up in the ten-year numbers.
ORDER NOW: Buy Kiplinger’s Mutual Funds 2012 special issue for in-depth guidance on the only investments you need.
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