WHAT'S AVERAGE: THE AVERAGE OF THE YEARS vs. THE ...

[Pages:1]WHAT'S AVERAGE: THE AVERAGE OF THE YEARS vs. THE COMPOUNDED AVERAGE (Compounded Returns Are Adversely Affected By Negative Years And Volatility)

SIMPLE ANNUAL CHANGES

'00

'01

'02

1900 7%

-9%

0%

1910 1920 1930 1940 1950

-18% -33% -34% -13% 18%

0% 13% -53% -15% 14%

8% 22% -23% 8% 8%

1960 -9% 1970 5%

19% 6%

-11% 15%

1980 1990 2000 2010 2020

15% -4% -6% 11% 7%

-9% 20% -7% 6%

20% 4% -17% 7%

'03

-24% -10% -3% 67% 14% -4% 17% -17% 20% 14% 25% 26%

COMPOUNDED ANNUAL CHANGE

01/01/1900 12/31/2020

Start

66.08

End

30,606.48

Years

121

'04

42% -31% 26% 4% 12% 44% 15% -28% -4% 2% 3% 8%

'05

38% 82% 30% 39% 27% 21% 11% 38% 28% 33% -1% -2%

'06

-2% -4% 0% 25% -8% 2% -19% 18% 23% 26% 16% 13%

'07

-38% -22% 29% -33% 2% -13% 15% -17% 2% 23% 6% 25%

'08

47% 11% 48% 28% -2% 34% 4% -3% 12% 16% -34% -6%

'09

15% 30% -17% -3% 13% 16% -15% 4% 27% 25% 19% 22%

AVERAGE

Avg = 7.4%

AVERAGE

Avg = 5.2%

100,000

DOW JONES INDUSTRIAL AVERAGE (DJIA): LOG SCALE

10,000

1,000

100

Year 1 Year 2 Year 3

CASE A

5.0% 5.0% 5.0%

CASE B

4.0% 5.0% 6.0%

CASE C

9.0% 5.0% 1.0%

CASE D

15.0% -10.0% 10.0%

CASE E

25.0% -15.0% 5.0%

CASE F

30.0% -25.0% 10.0%

Simple Avg. Return 5.000% 5.000% 5.000% 5.000% 5.000% 5.000% Compounded Return 5.000% 4.997% 4.949% 4.419% 3.714% 2.361%

10 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

DJIA Annual Close

Index Growing At 5.2%

Copyright 2003-2021, Crestmont Research ()

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