The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Year End Results...||Date: 1/6/2004 6:53 PM|
|Author: JAFO31||Number: 38384 of 80007|
2giantsteps: <<<<I was just wondering what everyone's return was on their 401(k) or other investment accounts was for the year.
I had a 22.2% return for 2003. I am new to investing and thought that this was pretty good since most things that I read say expect the average of 10% return. This is much better than last year when I had a -2%.>>>>
TTRoberts: "The portfolio in my wife's 401(k) got +32.25% for 2003, but the year before it was a –10.8%. Like you, over the last 2 years I have “averaged” in the realm of 10%+. But over the last 4 years the average has only been +5.84%. So you see, just what kind of “average” you might have really depends on what segment of time you carve out of a list of variable returns. And I might add, you need to be very careful about your thinking about “average” returns using constant rate thinking.
For example, this 401(k) “average” rate of return was 5.84% over the last 4 years (11.33% -9.93% -10.3% +33.25%/4). The actual return over that period calculates out to be 3.55%. But . . . if I had earned 5.84% EACH year instead of it being the variable return as shown, the 401(k) would have had 5.5% more in it today."
Average when talking about stock returns typically does not mean arithmetical mean of yearly returns (11.33% -9.93% -10.3% +33.25%/4, in Ted's example).
Average when talking about stock returns typically means Compund Annual Growth Rate (CAGR), which is the "imaginary number that describes the rate at which an investment grew as though it had grown at a steady rate" of growth."