The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 38

Do You Figure They Earned Their Keep?

When Uncle Morris died in December 1949, he left you a cool quarter of a million smackaroonies in a tax-free trust—with your dad as trustee. In 1975, you became 35 years old, and based on the trust's provisions, the money became yours. But during the years dad had it, he turned it over to a money management firm, and you've always wondered whether the outfit really earned its keep. Specifically, you want to know if your trust funds beat the market over those 26 years. How do you find out?

Figuring the rate of return on your trust funds is the easy part. Just get a financial calculator and put it in the compound-interest mode. Enter the $250,000 starting value as the “present value.” Enter the amount you received from the trust as the “future value.” Enter “26” as “N” for number of years, and punch “ans” and “i”—out pops the compound annual rate of return. (From calculator to calculator, the keys will have slightly different labels; read the instructions.

The hard part to figure out is an exact average return for the market against which to compare your trust's results. You've seen lots of statistics bandied about regarding the market's rate of return in recent years, but nothing to let you pinpoint the market's return over a specific, but seemingly long-gone, time period. How do you do it? Use this table, which comes from a book by Lawrence Fisher of the University of Chicago (no relation) and his sidekick, James Lorie. They researched ...