I mentioned in the last article I would discuss ‘average’ soon; so here it is, sooner than I thought.
The “World of Finance” is fraught with misleading information. The use of average is one that needs a discussion. Chart A is a chart showing the compounded rates of return for a variety of asset classes. If I were selling you a buy and hold strategy, or an index fund, I would love this chart. From this chart showing 85 years of data, I could say that if you had invested in small cap stocks you would have averaged 11.93% a year, and if you had invested in large cap stocks you would have averaged 9.85% a year. And I would be correct.