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Market expectations

Q: I began investing a few years ago, and my first investments’ gains have averaged around 30 percent. I suspect this won’t last. What average annual returns can I expect over a 10-year period — maybe 15 percent?

A: There’s no way to know exactly how any stock or the overall market will do in any time period. Over decades, though, the stock market has averaged close to 8 or 10 percent annually — more than that with dividends reinvested. Over your particular investing years, you might average 6 percent, or 12 percent, or something else.

A market-topping average is hard to achieve over the long run. Yes, Apple stock has averaged annual gains of about 30 percent over the past 20 years, but IBM has averaged 5.7 percent and Johnson & Johnson has averaged 9 percent.

Since trying to beat the market is so difficult, superinvestor Warren Buffett has recommended low-cost broad-market index funds for most people. They offer an easy way to roughly match the market’s return.

Q: Where can I study and compare mutual funds?

A: The internet is great for that.

Morningstar.com is a major mutual-fund resource, offering details about thousands of funds’ performance, fees, taxes, holdings and much more.

The folks at the Financial Industry Regulatory Authority, meanwhile, offer useful comparisons and data via their Fund Analyzer tool at finra.org/fundanalyzer. There you can enter fund names or ticker symbols and compare fees and performances of various funds — as well as assessing their performances after fees have been subtracted. That can be a great way to see how often inexpensive index funds outperform managed funds, even if the managed funds sport higher pre-fee returns.

Reverse splits

Dear Fool: I should have known better, but I took investment advice from a rag that repeatedly failed me. More than half the companies I invested in had reverse splits of 1-to-10 or 1-to-20. After those splits, most of them went down the drain completely.

The Fool responds: Ouch. Too many investors don’t sufficiently understand what stock splits and reverse splits are and mean.

With a regular stock split, such as a 2-for-1 split, if you have 100 shares of a stock priced at $50 per share (total value: $5,000), post-split you’ll have 200 shares priced around $25 apiece (total value: $5,000). Splits lower share prices, but investors’ stakes remain the same.

There’s little reason to rejoice or lament a regular stock split, but a reverse split is usually a red flag, signaling a company in trouble. With a 1-for-10 split, 100 shares valued at $5 per share would become 10 shares valued at $50. Reverse splits can be used to inflate a stock’s price so that it looks less worrisome.

Be careful with any investing newsletter — make sure that its record is available and impressive. (You can access some rankings of newsletters at hulbertratings.com.) Ideally, make your investment decisions based on your own research, perhaps with the help of a good newsletter — or just stick with low-fee, broad-market index funds. They instantly and easily set you up to earn the stock market’s approximate return.

A mouse for your house

Many investors have been steering clear of Walt Disney (NYSE: DIS), fearing the effect of gobs of consumers cutting their cable cords on its ESPN and ABC-TV businesses. But that’s shortsighted.

Disney’s theme parks attract more than 150 million visitors annually, the Disney cruise line is adding three more ships between 2021 and 2023, and the company is breaking away from its Netflix partnership to nurture its own digital video efforts.

Disney is already a movie powerhouse. It owns much of the Marvel universe through its acquisition of Marvel Entertainment. And having also bought Pixar and Lucasfilm, it has the Toy Story and Star Wars franchises, too. Some analysts have estimated that Disney earned 61 percent of the movie industry’s total profits in 2016.

With Disney acquiring Twenty-First Century Fox for $71 billion (the purchase was approved by shareholders last month), it will get a rich content library featuring properties from “Avatar” to “The Simpsons.” Disney’s ability to turn intellectual property into cold, hard cash will serve it well as it builds its own video-streaming service.

Walt Disney’s future looks as strong as ever, and its stock seems undervalued today, trading with a recent price-to-earnings (P/E) ratio in the midteens and a 1.5 percent dividend yield. (The Motley Fool owns shares of and has recommended Disney.)