Before Index Funds: How Much of the Market Return Could Investors Have Got?

55 Pages Posted: 25 May 2023

See all articles by Edward F. McQuarrie

Edward F. McQuarrie

Santa Clara University - Leavey School of Business

Date Written: May 23, 2023

Abstract

This paper constructs new indexes of mutual fund returns from 1926 and compares the returns investors could have realized to published market returns. The stock fund investor would have underperformed by 120 - 158 bp annualized. The balanced fund investor would have lagged in the 1930s and 1960s. To show the impact of including costs, the new fund indexes are applied to re-examine sustainable withdrawal rates. Contrary to prior work using cost-free indexes, a 1960s US retiree invested in mutual funds could not have sustained a 4% withdrawal rate. The more complete the cost accounting the greater the shortfall.

Keywords: mutual fund performance, sustainable withdrawal rate, cost matters hypothesis, 60/40 allocation

JEL Classification: G23, G51

Suggested Citation

McQuarrie, Edward F., Before Index Funds: How Much of the Market Return Could Investors Have Got? (May 23, 2023). Available at SSRN: https://ssrn.com/abstract=4457203 or http://dx.doi.org/10.2139/ssrn.4457203

Edward F. McQuarrie (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

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