For the last decade, 10-15% average annual return would have required keeping 70-90% of the funds invested in Nasdaq-100[1].
Also, Vanguard 500 Index Fund (VFIAX) currently has a 10-year average of 13.52%[2].
The general advice is not to keep more than (110 - your_age)% of your retirement portfolio in these high risk / high rewards funds.
Therefore, it's entirely possible to receive 10-15% annual returns until you turn 40, but as the period of time until retirement shorters, it becomes too risky.
In other words, what is a "medium-risk" at 35, can be a "high-risk" at 55, because one might not have enough time to recover from an economic crisis at an older age.
Small caveat - Looking at 10 yr average right now is not a good measurement for future returns. 10 years ago stocks were just coming out of a recession. Right now they are at all time highs.
Nasdaq-100 dropped by -41.89% in 2008, and then went up by +53.54% in 2009. That's it. The only other negative performance since 2002 was in 2018 (-1.04%). If you are a kind of investor who starts selling off in the middle of an economic downturn, of course you will lose.
Just worth noting: 3/5 * 3/2 = 9/10. i.e., dropping 40% then going up 50% doesn't get you back up to 100%. Not saying you implied that it does. Just making this fact explicit.
That's a good point, but Nasdaq-100 had an average annual return of 13% even when counting from December 31, 2007 – which is before the beginning of the last recession.
At no point I called it low risk. It's high risk / high return. The risk of high financial exposure to such funds can only be taken until 40, because one needs to be able to not sell during the entire economic downturn.
Most index-fund based retirement investment packages focus on 80/20, 60/40, and 40/60 stock-to-bond split, depending on your current age.
Nasdaq-100 or SP-500 can be a part of a medium-risk investment portfolio as long as the exposure to them is adjusted based on the period of time left until retirement.
It's a medium-risk strategy to keep up to 80% of your retirement portfolio invested in Nasdaq-100 or SP-500 in your 20s, up to 60% in your 40s, and up to 40% in your 60s. As long as the rest of the portfolio is invested in low-risk government bonds.
Additionally, the trick is to diversify away the idiosyncratic risk so that all that is left is systematic risk (risk common to all stocks that is unavoidable). One does this by picking stocks that are oppositely correlated so that volatility (aka risk which is measured through variance/ st. dev) is canceled out. The more stocks added to a portfolio, the more the idiosyncratic risk is diversified away; this is called holding the market portfolio. You can learn more my looking up the Capital Asset Pricing Model. Here are additional resources:
https://drive.google.com/drive/folders/1l9TfhvUjCasEMPgWzJtn...
I agree that 10-15% is a little optimistic, but even with a more realistic 4-7% you'd still have $300,000-500,000 at the end of 30 years, which is nothing to sneeze at.
Most Vanguard funds, even the Admiral ones, only require $3,000 USD minimum these days. The expense ratio is often 0.15% or less. Index funds are as low as 0.04%.
He's talking about a specific class of funds that are sold generally to institutions. Think buying funds in "wholesale"; they have low fees, high minimums. Those same funds can be bought "retail" though, with normal fees and typical minimums ($3k-$10k).
He's talking about the "Admiral" class of funds which have lower fees but higher minimums. (And most are $50k min, not 500k). Most of these funds can be bought at lower minimums too, they just have higher fees.
I'm invested in Vanguard 500 Index Fund Admiral Shares, and the minimum investment is $3000, with fees of 0.04%. Those are pretty low minimums, and seem to me to be exceptionally low fees, and the average annual return is 13.94% over the last 10 years (before taxes).
I think OP is referring to the "Institutional" class of funds. They have much higher minimums because their target market is pension funds and large 401(k) plans that invest using pooled accounts.
How do you do that?