ASK THE FOOL

Market Expectations

Q: I began investing a few years ago, and my first investments’ gains have averaged around 30 percent. I suspect this won’t last. What average annual returns I can expect over a 10-year period — maybe 15 percent? — T.B., Baton Rouge, Louisiana

A: There’s no way to know exactly how any stock or the overall market will do in any time period. Over decades, though, the stock market has averaged close to 8 or 10 percent annually — more than that with dividends reinvested. Over your particular investing years, you might average 6 percent, or 12 percent, or something else.

A market-topping average is hard to achieve over the long run. Yes, Apple stock has averaged annual gains of about 30 percent over the past 20 years, but IBM has averaged 5.7 percent and Johnson & Johnson has averaged 9 percent.

Since trying to beat the market is so difficult, superinvestor Warren Buffett has recommended low-cost broad-market index funds for most people. They offer an easy way to roughly match the market’s return.

Q: Where can I study and compare mutual funds? — P.L., Grand Rapids, Michigan

A: The internet is great for that.

Morningstar.com is a major mutual fund resource, offering details about thousands of funds’ performance, fees, taxes, holdings and much more.

The folks at the Financial Industry Regulatory Authority (FINRA), meanwhile, offer useful comparisons and data via their Fund Analyzer tool at finra.org/fundanalyzer. There you can enter fund names or ticker symbols and compare fees and performances of various funds — as well as assessing their performances after fees have been subtracted. That can be a great way to see how often inexpensive index funds outperform managed funds, even if the managed funds sport higher pre-fee returns.

Fool’s School

Value and Quality

Successful investing boils down to being able to answer two key questions whenever considering a stock for your portfolio:

1) Is this a healthy, high-quality company?

2) Is the company’s stock priced attractively right now?

If you focus on only one, you might end up buying overvalued shares of a terrific company, or seemingly bargain-priced shares of a troubled or doomed business. Investors have lost a lot of money doing either or both of those things.

Many good companies are rather apparent, but a close examination is wise. You can discern quality by assessing a company’s profitability, growth and health via measures such as sales and earnings growth rates, profit margins, return on equity (ROE), return on assets (ROA), inventory turnover and market share, among other things. Management quality and candor is also important.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.