| Ten-Year
Risk and Return of Several Popular Indexes
By IndexFunds.com Staff
March 7, 2002
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Asset allocation is certainly no simple task, but it's a little
easier for passive investors as far as choosing funds. The reason
is that indexers aren't concerned with finding the best manager
in an asset class - they simply invest in the index fund or ETF
that covers the asset class and move on. However, there are some
decisions to be made because there are usually several indexes
that cover an asset class. To help sort things out a little, we
went into Morningstar's index database and looked at ten-year
returns and standard deviations of many popular indexes and listed
them below by size (small, mid, and large).
Standard deviation tells an investor how widely the index returns
fluctuated over the 10-year period. A higher standard deviation
implies more volatility and risk.
| Large Cap Indexes |
| Index |
Std. dev. - 10 yrs. |
10 yr. ret. |
15 yr. ret. |
| Barra Large Cap Growth |
18.19 |
12.70% |
13.09% |
| Barra Large Cap Value |
15.50 |
12.79% |
11.82% |
| Dow Jones Large Growth |
22.32 |
10.18% |
11.20% |
| Dow Jones Large Value |
14.12 |
13.01% |
12.35% |
| Russell 1000 |
15.96 |
12.85% |
12.53% |
| Russell 1000 Growth |
20.46 |
10.87% |
11.86% |
| Russell 1000 Value |
14.63 |
14.05% |
12.60% |
| Standard & Poor's 500 |
15.80 |
12.97% |
12.67% |
| Wilshire Large Cap 750 |
16.18 |
12.48% |
12.34% |
| Wilshire Large Growth |
20.06 |
10.74% |
11.65% |
| Wilshire Large Value |
15.17 |
12.98% |
12.14% |
*Source: Morningstar data as of 1/31/2002,
annualized returns
| Mid Cap Indexes |
| Index |
Std. dev. - 10 yrs. |
10 yr. ret. |
15 yr. ret. |
| Barra MidCap Growth |
24.30 |
14.32% |
- |
| Barra MidCap Value |
16.47 |
14.88% |
- |
| Dow Jones Midcap Growth |
28.30 |
11.05% |
10.78% |
| Dow Jones Midcap Value |
14.98 |
13.03% |
12.86% |
| Russell Midcap Growth |
26.05 |
10.64% |
11.59% |
| Russell Midcap Value |
14.62 |
14.24% |
12.76% |
| S&P Midcap 400 |
18.75 |
14.74% |
15.01% |
| Wilshire 4500 |
21.77 |
10.06% |
10.27% |
| Wilshire Mid Cap 500 |
18.95 |
13.52% |
12.80% |
| Wilshire Midcap Growth |
26.35 |
10.63% |
11.27% |
| Wilshire Midcap Value |
15.61 |
14.61% |
13.12% |
*Source: Morningstar data as of 1/31/2002,
annualized returns
| Small Cap Indexes |
| Index |
Std. dev. - 10 yrs. |
10 yr. ret. |
15 yr. ret. |
| Dow Jones Small Growth |
30.62 |
10.85% |
10.90% |
| Dow Jones Small Value |
14.70 |
13.75% |
13.20% |
| Russell 2000 |
20.14 |
10.53% |
9.87% |
| Russell 2000 Growth |
26.95 |
5.99% |
7.02% |
| Russell 2000 Value |
14.79 |
14.34% |
12.19% |
| S&P Smallcap 600 |
19.88 |
12.87% |
10.29% |
| Wilshire Small Cap 1750 |
20.25 |
11.81% |
10.86% |
| Wilshire Small Growth |
27.47 |
7.25% |
8.12% |
| Wilshire Small Value |
15.91 |
14.36% |
12.19% |
*Source: Morningstar data as of 1/31/2002,
annualized returns
Finally, here's similar data for two broad total market indexes,
as well some numbers for a REIT index and an international index
- the broad MSCI EAFE.
| Index |
Std. dev. - 10 yrs. |
10 yr. ret. |
15 yr. ret. |
Russell 3000
|
15.85 |
12.58% |
12.27% |
Wilshire 5000
|
16.14 |
12.16% |
12.00% |
Wilshire REIT
|
14.01 |
11.01% |
7.76% |
MSCI EAFE
|
15.13 |
4.76% |
3.55% |
*Source: Morningstar data as of 1/31/2002
So there's some index data to chew on when you're making your
asset allocation calls, although there are a few caveats. The
first is that these numbers are based on past returns, and as
such they're no guarantee of future results, as they say. However,
many investors use past performance and volatility as a guide
to form reasonable expectations when making portfolio allocation
decisions. Using the past to extrapolate future returns is by
all accounts a dangerous game, but many economists believe historical
data is a little more useful in the context of quantifying risk
and volatility.
It should be duly noted that the 1990s showed us one of the most
exuberant bull markets in U.S. history, and the returns data above
back that statement up. In other words, don't count on returns
like this because history shows they are not the norm. Many respected
economists and investors, including John Bogle, have said that
a more realistic expectation for the return on equities over the
next few years might be somewhere in the neighborhood of 6 percent
annually.
Also, no investor should make asset allocation decisions based
solely on asset class risk and returns, but we did think it would
be nice to have that index data in one place for convenience.
