Average Rates of Return are often touted by financial experts, and yet simple math can show us that Average does not equal Actual.
Pretend that you invested $100,000 into a mutual fund that had promised an average rate of return of 25% if you left the money alone for 2 years. In the first year it earned 100%.
After the first year, the investment would look like this:
In the second year, the fund earned -50% (that is a negative 50%) and so now your investment looks like this:
While your funds average was 25% (that is mathematically correct, 100 + -50 / 2 = 25%) its actual yield was 0% because you ended up with only the $100,000 you started with.
So, Average does not equal Actual. If you’d prefer to invest your money in a place that does not roller coaster ride, please contact us and we can direct you to some options.
Please note the above illustration was for educational purposes only.