I think if you average any kind of a positive return by passively investing in mutual funds, index funds, or ETFs, you're probably doing about as well as can be expected in this environment. Remember--most actively managed funds fail to even match the market (S&P 500) due to fees and overtrading. And a lot of people were spoiled by the extended bull market of 1982-2000 where the average annual return was just under 15% a year.
Now, after a disastrous 2008, the S&P 500 is currently at levels last seen in 1997.
Here are a pair of links to help illustrate:http://www.1stock1.com/1stock1_141.htm
- This shows the annual return of the S&P 500 since 1975.http://www.safehaven.com/showarticle.cfm?id=68
- And this one includes a chart showing the average annual returns for all secular bull and secular bear markets going back all the way to 1802. The average annual return per year in a secular bear market (like we've been in since 2000) is just 0.3%. This one, after factoring in 2008, is considerably negative (from 2000 to 2007, the S&P 500 ended at almost identical level from where it started - and then there was 2008).
Also, focusing on the "average" return misses another point - average isn't typical. If you look at the S&P 500 returns over the last 14 years (since 1995), 11 of those 14 years have seen double digit returns - both negative and positive. No one complains when the market goes up 26% (2003) or 13% (2006) but how soon are you going to be paying cash for your vehicle when the market drops close to 40% like it did last year?
Don't get me wrong - I really do like this strategy. My only complaint is that it's illustrated with an extremely best-case scenario. If you're going to passively invest your savings from not having a car payment, and since you're going to need the money in the somewhat near term, do yourself a favor and put it in CDs where it will at least be safe and you can count on a positive return.
I'm not saying you can't make any money in this market, but it requires active investing, not passive investing (and that's not intended as a slight or criticism toward anyone--some of my closest friends are passive investors).