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0 pointslottin1y ago0 comments

If you get 8% returns per year on average, the expected annualized return over a multi-year period is going to be LESS than 8%.

This is because you won't get exactly 8% each year. For example, suppose the returns over a 3-year period are: 20%, -10%, 14%. In this case, the return over the whole period is 23.21% (= (1 + 0.20) * (1 - 0.10) * (1 + 0.14) - 1). On the other hand, a 8% return each year would have resulted in a 25.97% return over the whole period (= (1 + 0.08)^3 - 1).

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ericpauley1y ago

When people say x% average annual return this is almost always referring to geometric mean already, so the above math doesn’t apply.

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ericpauley1y ago

When people say x% average annual return this is almost always referring to geometric mean already, so the above math doesn’t apply.

j / k navigate · click thread line to collapse