We all want to know the average return on stock portfolio investment. I have it in my head somewhere. This is what investors seek to understand, as it can have a significant impact on their success or failure.
The average annual rate of return for an average person is around 3.00%. That is really good isn’t it? What is average? Although average can be used for many things but here we are referring to stock market averages so we will stick with the basics.
Average of course refers to the overall performance of the stock market over a given period. What is being averaged is the market’s performance over the time period that you are looking at. This could be the stock exchange or any other type investment. Simply look at the stock market’s performance during specific periods and then average it over time.
What are the periods you are interested in?
If you’re looking for a general rule, then you should choose the last five year as an example. This will give you enough data points to calculate your average. From there you can simply calculate how much of your portfolio should have done in those years. The best way to invest is buy low and then sell high. So the more you can buy and/or sell at a higher average, you will be better off.
A time-based average is a similar approach to the index-based one
Some people prefer to use the age of the market to help them decide on an average. There are many ways to arrive at an average. A time-based average is a similar approach to the index-based one. Also, if you are using one or more of the newer, higher-rated securities such as ETF’s and stocks, then the time period you are looking at will likely be based on that. If you are limited to historical information then you will have to average out the years to get the best.
Investors may also prefer to see an overall average.
This simply represents the average cost to buy all securities that make up the total market cap. While this number might seem easy, it really depends on how volatile the stock market has been recently. If the stock market has experienced a lot more volatility in the last year, it will have a lower average than if it was stable and strong. If it is just general fluctuation, it will likely be lower than the market average.
Investment professionals often look at an average cost over a period of years to determine their risk factors. A low average cost average is best if you want to protect your capital against any major losses. This way you can eliminate some high risk investments while only picking up a few good ones. If you are a high-roller, it is not advisable that you choose the Average Cost Average unless you can afford to lose your investment capital.
Of course, another factor to consider is the time horizon of the investment.
The SAV figure is recommended if the investment is for more that ten years. The SAV figure is the arithmetic equivalent of the annual income that will be obtained by the investor over the span of those years. Usually, it is a good idea to take a year off of work in order to make a nice investment into a longer term plan. This will give you more security and a higher chance of compounding your money.