What is "Hypothetical" about the Growth Chart?"

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What is "Hypothetical" about the Growth Chart?"

Postby vuduthmb » Wed Apr 18, 2012 7:29 pm

When I go to the Vanguard web site and research a fund like VTSAX for instance, there is a chart there labeled "Hypothetical Growth of $10,000.00) as of 3/21/2012. The chart starts in 2002.
What is "hypothetical" about this? This is well documented past data, right? They can compute exactly how much $10,000 would have grown for any fund in the last 10 years, right?
I realize past performance is no guarantee of future performance, but aren't we talking about non speculative data here?
I hope I'm making sense.
Thanks for the invaluable input and support I get here.
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Re: What is "Hypothetical" about the Growth Chart?"

Postby boglestan » Wed Apr 18, 2012 7:45 pm

Well, it can be completely accurate but also hypothetical. The vast majority of people looking at that chart didn't put exactly $10,000 into that fund on that specific day in March 2002.
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Re: What is "Hypothetical" about the Growth Chart?"

Postby archbish99 » Wed Apr 18, 2012 8:17 pm

vuduthmb wrote:When I go to the Vanguard web site and research a fund like VTSAX for instance, there is a chart there labeled "Hypothetical Growth of $10,000.00) as of 3/21/2012. The chart starts in 2002.
What is "hypothetical" about this? This is well documented past data, right? They can compute exactly how much $10,000 would have grown for any fund in the last 10 years, right?
I realize past performance is no guarantee of future performance, but aren't we talking about non speculative data here?
I hope I'm making sense.
Thanks for the invaluable input and support I get here.

This.
I'm not a financial advisor, I just play one on the Internet.
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Re: What is "Hypothetical" about the Growth Chart?"

Postby nisiprius » Wed Apr 18, 2012 8:27 pm

It's hypothetical because it shows you what you hypothetically would have made if you'd invested $10,000 into the fund and left it there.

It's not a trivial or meaningless detail, because actual investor returns depend on their timing of purchases and sales, and (amazingly) it is often quite different from the hypothetical buy-and-hold number, and usually lower.

Morningstar has a very neat feature called "investor returns" which shows collectively what investors actually made, based on the history of fund inflows and outflows. It can be very different from the (hypothetical) total return of a buy-and-hold investor.
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Re: What is "Hypothetical" about the Growth Chart?"

Postby Default User BR » Thu Apr 19, 2012 1:15 pm

Remember that it includes reinvestment of distributions, but does not include taxes on those distributions.


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Re: What is "Hypothetical" about the Growth Chart?"

Postby YDNAL » Thu Apr 19, 2012 3:31 pm

vuduthmb wrote:When I go to the Vanguard web site and research a fund like VTSAX for instance, there is a chart there labeled "Hypothetical Growth of $10,000.00) as of 3/21/2012. The chart starts in 2002.
What is "hypothetical" about this?

The "hypothesis" is that the investor put in $10K on 3/22/2002 and the money sat untouched until 3/21/2012. People, generally, contribute (accumulators) and/or withdraw on an ongoing basis.
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