What You Need to Know about Averages For Your Investments
Global markets returned -18% in 2022 and gained +22% in 2023, effectively reversing almost all losses in the prior year. The simple (arithmetic) average return is +2% per year [(-18%+22%)/2]. However, the reality is that rather than the positive average gain, global markets actually lost a small -0.12% (geometric average) per year over the two year period.
Research shows that global markets give a historical average return of 7% p.a., however almost none of the individual years gave an exact return of 7%. The actual experience of -18% in 2022 and + 22% in 2023 is more typical of the investment experience of global stocks. Expecting to receive an investment return of 7% per year and not taking into account the variability in annual returns will certainly disappoint investors.
In a follow-up insight next week, we look at what averages mean for frequency of positive or negative returns in global markets and more. Rely on an interest aligned wealth manager like GYC to look past the averages and capture the nuances.
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the same fashion, GYC espouses the same expertise in markets as good physicians do with health care. In addition, we adapt insights from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy.
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