Average: The Most Dangerous Number in Wealth Management
Averages are comforting. They feel clean, familiar, and endlessly quotable. Markets return about this much. Retirees spend about that much. People live roughly this long. In a profession built on uncertainty, averages offer the illusion of control and the added benefit of fitting neatly into charts.
But wealth is not built, preserved, or spent in averages. It unfolds through behaviour, sequences, and extremes. In wealth management, leaning too heavily on averages often produces plans that look elegant in spreadsheets and unravel quietly in real life.
At Westmount Wealth Management, we often remind clients that averages may somewhat directionally describe markets over very long periods of time, but not people. People, predictably and inconveniently, behave like people.
Average Market Returns vs Real Investor Experience
Over long periods, equity markets have delivered attractive average returns. The S&P 500, for example, has compounded at roughly 9 to 10 percent annually over the past century. This number is widely cited, mathematically sound, and often responsible for misplaced confidence.
The problem is that very few investors experience it.
DALBAR’s long-running research on investor behavior consistently shows that the average equity investor earns meaningfully less than the market itself over time. The gap is not explained by bad products alone. It is explained by bad timing, emotional decision-making, and the very human tendency to buy what has already gone up and sell what feels unbearable.
Markets assume discipline, while investors supply emotion under stress.
Benchmarks quietly assume perfect behavior, uninterrupted exposure, and no panic at precisely the wrong moment. Real portfolios include cash flows, taxes, second-guessing, and the occasional “this time feels different” conversation.
The result is that the “average market return” becomes a theoretical construct, while the average investor experience is something else entirely. Comparing the two without context is like comparing a treadmill speed to a mountain hike and wondering why the legs feel different.
This is where thoughtful planning matters most. Not in predicting markets, but in designing portfolios and decisions that can withstand imperfect behavior, uneven timing, and the realities of real lives.
Skewness and the Myth of the Typical Outcome
Averages also conceal how uneven market outcomes truly are.
Research by Professor Hendrik Bessembinder reveals an uncomfortable truth. Most individual stocks fail to beat Treasury bills (also known as the risk-free rate) over their lifetime. The vast majority of long-term wealth creation comes from a very small minority of extraordinary companies.
In other words, the market’s success is driven by outliers. The average stock is not quietly compounding in the background. It is mostly struggling.
This has important implications. Concentration does not increase expected returns. It increases dispersion. A concentrated portfolio widens the range of possible outcomes, some wonderful, many regrettable, without improving the odds of success.
Diversification doesn’t water down returns; it narrows the margin for disappointment. Averages smooth this reality into something far more comforting than accurate. The notion of “overdiversification” is therefore nonsensical, in markets where a small minority of stocks generate nearly all long-term wealth, broad diversification is not excess, it is insurance against missing the few outcomes that matter.
The Myth of Average Retirement Spending
Retirement spending is often presented as a single annual number. In reality, it behaves nothing like one, and neither does wealth.
Spending in retirement typically follows what planners describe as the go-go, slow-go, and no-go years. Early retirement is active and expensive. Travel, leisure, and long-delayed pursuits dominate. Mid-retirement tends to settle. Later years often bring rising healthcare and support costs, replacing plane tickets with prescriptions. The result is the familiar so-called “spending smile”, higher spending early and late, lower in the middle.
Planning to an average annual spend flattens this curve into something reassuring and wrong. It risks underspending when health allows enjoyment or overspending early and discovering restraint later is not nearly as appealing as advertised.
But spending is only half the problem. Wealth statistics suffer from an even more severe distortion.
In Canada, the gap between average and median household net-worth is substantial. According to Statistics Canada, the average net worth of Canadian households is well over one million dollars, while the median is meaningfully lower. The difference is not academic. It reflects inequality and the fact that a relatively small number of very wealthy households pull the average upward.
In other words, the “average Canadian” is doing far better than most Canadians.
This is why benchmarking your readiness for retirement against average wealth figures is not just unhelpful, it is misleading. Averages are shaped by outliers. Medians describe typical experience. Neither, on their own, tells you whether you are prepared for your life.
What actually matters is far simpler and far less headline-worthy. Your wealth relative to your spending. Your assets relative to your goals. Your flexibility relative to uncertainty.
Comparing yourself to statistical benchmarks, or worse, to other people, adds little clarity and considerable anxiety.
Morgan Housel captures this perfectly in The Psychology of Money when he writes that “wealth is what you don’t see.” The cars, homes, and lifestyles we compare ourselves to are visible spending, not invisible savings, flexibility, or peace of mind. Measuring success by outward comparison turns personal finance into a game with no finish line and no winners.
Keeping up with the Joneses has always been expensive. In retirement, it can be ruinous.
Retirement planning is not a competition, and it is certainly not an exercise in matching someone else’s averages. It is the process of aligning resources with a life you actually want, lived at your own pace, on your own terms.
Averages cannot tell you whether that balance exists. Only your plan can.
What Endures When Averages Fail
If averages mislead, what remains dependable?
Time, not precision. Staying invested matters more than being clever.
Diversification, not concentration. The future is broader than forecasts.
Planning to ranges, not single numbers. Longevity, returns, and spending are distributions.
Behavioural alignment. The best plan is the one that survives uncomfortable conversations.
Secure lifetime income where. Some certainty is worth paying for.
Averages are not useless. They summarize large datasets and simplify explanations. But when averages become the foundation of wealth planning rather than a rough reference, they produce strategies that work beautifully until they don’t.
Enduring wealth is not built by achieving the average outcome. It is built by preparing for variability, surviving extremes, and maintaining discipline when markets and emotions refuse to cooperate.
At Westmount Wealth Management, we do not plan to averages, we plan to lives. Our approach is grounded in evidence, shaped by humility, and designed to endure when assumptions fail quietly and all at once.
Because in wealth management, the most dangerous belief is not pessimism. It is the idea that average rule-of-thumb will be good enough.
This information has been prepared by Damir Alnsour, MBA, CFA, CFP®, FCSI® who is Head of Portfolio Management, Portfolio Manager, Financial Planner for Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc.
This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
