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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