Skip to main content
No. of Recommendations: 0
In response to my earlier post, JABoa wrote, in part, " This is because, if you calculate gains and losses in percent, you must multiply them, not add them.

The correct annual equivalent returns in JAFO31's two examples are 4.000% and 6.911%, to 3 decimal places.


Glad to know the methodology and the exact numbers [presumably on a annual compound basis? (:>)] from someone far more skilled in mathematics than I. As I admitted in my first post I can be a little lost without all my software.

<<The mean return for the three years is 16.67% -- (50% + 50% + -50%)/3 = 50%/3 = 16.67%. How deceiving, because the compounded rate of return is actually more like 4% [emphasis added in this post] (NOTE ballpark guess because I do not have the time to calculate now and my easy to use software is on the other computer). [additional emphasis added in this post]

. . . The mean return for the three years is 7% -- (10% + 10% + 1%)/3 = 21%/3 = 7%.>>

I thought that I was acknowledging that actual compounded rate of return was significantly different than apparent mean average for the three years, but I guess I was not clear.

JABoa also wrote A minor point, but there are things JABoa the Pedant can't let slide past.

I was trying to illustrate the difference between the real compound rate of return versus the apparent mean average with volatile investments to show why volatility should not be completely ignored. I was not trying to slide anything past anybody.

With JABoa's able assistance we know that the volatile investment from my example -- +50%, +50%, -50% has a 4.000% return over three years, which is very different from the apparent mean average of 16.67%. We also know that the more conservative investment from my example -- +10%, +10%, +1% has a 6.911% return over three years, which is not very different from the apparent mean average of 7%, and would have been the better returning investment over that three yeqr period. JABoa has illustrated the point I wanted to make more clearly than I did! Thanks,

Regards, JAFO






<<The mean return for the three years is 16.67% -- (50% + 50% + -50%)/3 = 50%/3 = 16.67%. How deceiving, because the compounded rate of return is actually more like 4% [emphasis added in this post] (NOTE ballpark guess because I do not have the time to calculate now and my easy to use software is on the other computer).

. . . The mean return for the three years is 7% -- (10% + 10% + 1%)/3 = 21%/3 = 7%.>>
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.