Viewing a single comment thread. View all comments

DeluxeXL t1_iy2c511 wrote

It's just how we present gains and losses. We don't include the 1.00 (100%) and only show the change (e.g. x90% is written as -10%, x110% is written as +10%). The geometric mean is still the same once the full form is written out.

> And because of that your returns don’t really end up being “10% per year on average”

Actually, they do. 10-year CAGR of S&P 500 is around 10-12% before inflation adjustment, so the "you need to make a higher return" is already factored in. Higher return aka market recovery comes unpredictably. The real trick is to not miss the recovery by staying invested during a decline.

5

HopefulInformation OP t1_iy2djzt wrote

That makes sense. Thank you!

Link to article here: https://www.investopedia.com/articles/06/compoundingdarkside.asp

1

DeluxeXL t1_iy2flfo wrote

Bad advices in the article. Author recommends stock picking and market timing.

> Investors must become good stock pickers rather than just investing in a diversified portfolio of stocks.

> Another strategy is to use bonds to build a ladder that provides a relatively safe return that can be used in a weak stock market environment.

> it is even more important to employ proven capital management techniques. This starts with trailing stops to minimize losses and/or capture some profit from an investment.

5