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The bad news about your investment returns

Do you want the good news or the bad news first?

Good news? All right then…

As The Australian Financial Review reported yesterday…

“Australian share funds gained an average of 24.7 per cent for the year to June 30, their strongest performance in six years.”

It’s true, though you might not have realised. Despite the recent volatility and dips in the S&P/ASX 200 index… the bull market still ensured handsome, double-digit gains for many investors.

This brings the average annual return among Australian share funds, over the last three years, to over 9%.

Now for the bad news…

Looking at the annual returns over 5 years gives us a slightly different — and far less rosy — picture.

Inclusive of the GFC, fund returns have averaged a mere 3.9% annually since 2008. In a word: Ouch.

I’m sure you’ll agree that growing your money by less than 4% a year isn’t likely to give you the kind of life-changing returns we’re all hoping for when we invest.

Not only is this return far below the long-term market average…

We all know 3.9% a year isn’t going to fund anyone’s European holiday. And certainly not an early retirement!

In fact, if most of us had known all along that only 4% returns were on offer, we’d probably have just stayed in cash — or term deposits.

Yet the sorry truth is… that too would have been a mistake.

As my colleague Scott Phillips pointed out in yesterday’s edition of Take Stock, investors like you and me need at least the market average return to get a solid chance of building $1 million over time.

And market-beating returns will get us there even faster!

So you’re right to be asking yourself: How can I get market-beating returns and begin making up lost ground?

This stock is up nearly 700%…

Speaking of the last five years…

Shares of small cap Jumbo Interactive (ASX: JIN) have risen nearly 700% over this time, compared with a tiny 3% rise in the S&P/ASX 200 index… not including dividends.

Talk about market-beating returns!

Fool.com.au analyst/writer Catherine Baab-Muguira recently discussed Jumbo’s prospects in The Sydney Morning Herald, pointing out that Jumbo has an established business here in Australia (operating popular online lottery ticket site Ozlotteries.com)…

But it’s the company’s overseas expansion that looks to be the most promising part of the story. Jumbo has recently signed deals to expand into Germany, Mexico and the U.S., markets worth over $70 billion in total!

Should this relatively tiny Aussie company capture but a small fraction of this value, its shares could rise far more in the years to come.

Now, Jumbo is not a current Motley Fool Share Advisor recommendation.

But we think it’s a prime example of how investing in the very best ASX stocks can add a shot of much-needed jet fuel to your diversified portfolio.

BHP Billiton $34… this greedy goose might have missed the boat

Warren Buffett often talks about his biggest mistake in investing — not buying Wal-Mart (NYSE: WMT) in the 1980s because it was a few cents more than he wanted to pay. The cost to Berkshire Hathaway shareholders over time, he says, is in the billions.

So… after releasing strong full year results today, and with BHP Billiton shares now trading at $34, was I too greedy in stubbornly waiting for the shares to fall below $30 before buying?

It looks like it now.

On the bright side, at least it won’t be a billion dollar mistake for me, because a) I’d never be able to invest enough money in the first place and b) BHP is already a massive company, and large-caps simply can’t appreciate as much as small cap companies.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Of the companies mentioned above, Bruce Jackson has an interest in BHP and Berkshire Hathaway.

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