Average Return Vs. Actual Return

Ever heard of the term “Average Return”? The talking heads on TV and financial planners love this term. How many times have you heard “move your money to me and I can get you a 12% average return”? I wanted to show the difference between an average return vs. an actual return. I’m going to start with this question: if I could get you a 25% average return, would you like that? Let’s assume an initial investment of $100,000 and over a period of four years I am going to show an average rate of return of 25% along with the actual return for the same years:

Average Vs. Actual

Here’s the big shock: getting a 25% average return isn’t hard to do, because you can LOSE money and still get a 25% return. I showed a 50% gain in the first year, then a 50% loss, followed by a 150% gain, and finally another 50% loss. The average return is in fact 25% (50-50+150-50 is a 100% total increase divided by 4 years which is 25% per year). The actual return is showing you started with $100,000, and now you only have $93,750.

So next time you get an offer in the mail, see it on TV, or read about it in a magazine doesn’t mean it is of actual benefit to you! A guaranteed 3% or 4% a year sounds way more appealing now, doesn’t it?

Get started

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.