The Methodology Behind “Average” Rate of Return

The Methodology Behind Average Rate of Return

When someone quotes the rate of return on a specific investment or quotes average returns on an index to support a theory behind achieving similar results in their investment, do you actually know what exactly they are talking about?  Further more, what is the probability that you will in fact end up with what everyone else is quoting as “average?”  The old joking definition of Statistics is: generally everyone; specifically no one.  And this seems to be  pretty fitting for a novice skill level in probability and statistics.  However, once we get a little more technical, and employ a few more mathematical techniques, we start to explore what purpose these numbers really serve.  We'll explore some useful applications of these figures in this post.

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An Oldie, but Goodie

An Oldie, but Goodie

I remember quite vividly the first time I saw this video.  I was still a career agent with one of the big 4 Mutuals and we had a special meeting conducted by the Director of Individual Life Sales.  He came from the Home Office to give us a presentation on the topic of life insurance as an asset class and brought with him this video recorded a few months prior on CNBC.

httpv://www.youtube.com/watch?v=1sskwUTj4z8

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The Chartology They Don’t Really Like Talking About

The Chartology They Don't Really Like Talking About

Ever flip on over the CNBC and watch their stock picking experts talk about chartology?  It's the process of looking at a graphical depiction of a stock or market performance and making “educated” guesses about where the market (or a particular equity) is going based on the statistical data that represents the chart's graphical display.  It's not perfect, but it's something a lot of Wall Street types get really excited over, and it's probably something you've run into if you've spent more than 10 minutes with a stock broker who wanted to pitch you on his or her latest and greatest stock idea.  Well, here's a chart that most 3rd graders could make a prediction off, and it's not good news for the buy and hold folks.  It's the historical data for the Dow Jone Industry Average, the index of the largest publicly traded companies in America (read: where the “low risk” blue chips call home).

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