When Dave Ramsey teaches about investing, he always bases his mutual fund returns on the average rate of return of the entire stock market since inception.  Over its entire history, the stock market as a whole has averaged an annual rate of return of around 11.9%.  Some years have done a lot better and others have done a lot worse, but on average the return has been 11.9%.  Dave rounds that to 12% for discussion purposes.

Many of Dave’s critics counter with the argument that you cannot get a 12% rate of return in mutual funds.  However, in my Roth IRA alone I have 4 mutual funds that have averaged over 12% since their inception.    If you visit Morningstar, you will see that there are plenty of mutual funds that have had a long-term rate of return greater than 12%. 

The key is to pick mutual funds that have a long-term track record.  The mutual fund should have been open for at least 10 years and averaged at least 12% over that time.  Also, as an investor, you must have a long-term mentality when investing in mutual funds.  If you cannot leave your money alone in the mutual fund for at least 5 years, then you should not invest.

Below are the four mutual funds in my Roth IRA that meet the criteria above.  They are all part of the American Funds family.  The Fund Lifetime Rates of Return are all as of March 31, 2010.

A disclaimer is in order here…  By no means am I advising you to invest in these funds.  If you are interested in them, then you should review their prospectus carefully and decide for yourself if they are right for you.  My point here is not to recommend a specific fund or fund family.  My point is to dispel the myth that a 12% rate of return is not possible, because that is simply not true.

Fundamental Investors (growth-and-income fund)
Class A shares
Fund Number       10
Ticker/Quotron Symbol     ANCFX
Newspaper Abbreviation     FdInvA
CUSIP Number     360802 10 2 
Fund Inception  August 1, 1978
Fund Lifetime Rate of Return:  12.52%

The Growth Fund of America® (growth fund)
Class A shares
Fund Number       05
Ticker/Quotron Symbol     AGTHX
Newspaper Abbreviation     GwthA
CUSIP Number     399874 10 6 
Fund Inception  December 1, 1973
Fund Lifetime Rate of Return:  13.79%

The Investment Company of America®  (growth-and-income fund)
Class A shares
Fund Number       04
Ticker/Quotron Symbol     AIVSX
Newspaper Abbreviation     ICAA
CUSIP Number     461308 10 8 
Fund Inception  January 1, 1934
Fund Lifetime Rate of Return:  12.18%

New Perspective Fund® (growth fund)
Class A shares
Fund Number       07
Ticker/Quotron Symbol     ANWPX
Newspaper Abbreviation     N PerA
CUSIP Number     648018 10 9 
Fund Inception  March 13, 1973
Fund Lifetime Rate of Return:  12.65%