Comments on: Average vs. Geometric Average

By: Finance 101

Finance 101 — Fri, 20 Nov 2009 19:56:44 +0000

Just remember, the geometric mean only informs you about the historical return. It is not a good predictor of next year’s return and therefore should not be used to compare across asset classes. For more information, see:

Blume, Marshall, 1974, Unbiased estimators of longrun expected rates of return

By: Simon

Simon — Mon, 20 Apr 2009 20:35:29 +0000

Thanks for the great explanation of geometric vs arithmetic average!

It makes sense though when you stop to think about it… every year you multiply your returns by the relevant factor, since this will give the increase (or decrease) in your returns achieved over that period. When multiplying however you are not simply multiplying the amount you initially put in but you are also multiplying the factors from previous years and hence a factor from a particular year influences all the factors that came before it, so you simply can not use the arithmetic average. The factors are not independent! I hope this makes sense, I tried my best…it’s still a great article though so thanks!

By: Fianance

Fianance — Fri, 20 Jun 2008 02:00:09 +0000

Geometric method is by far superior than arithmetic average!

By: Linea

Linea — Wed, 23 Apr 2008 16:06:42 +0000

Thank u, now it all make a whole lot of sense….

By: What a Difference a Year Makes!—AllFinancialMatters

What a Difference a Year Makes!—AllFinancialMatters — Mon, 28 Jan 2008 06:46:57 +0000

[...] Now, this graphic shows you how 2007’s returns impacted the annualized rate of return (also called the geometric average) for the indexes: [...]

By: benjamin

benjamin — Tue, 13 Mar 2007 07:16:38 +0000

Very kind of you. I then got a clear idea of what they are.
Thank you for all you have done.

By: george hayduke

george hayduke — Tue, 23 Jan 2007 21:00:14 +0000

excelent analysis. you have to use georeturns!!!!

By: Steve

Steve — Tue, 19 Sep 2006 20:02:04 +0000

Ah so good to have found this. was trying to work out geometric average of Net income growth with negitve numbers and was not working. Using your method I got the answer and my sanity.

Great work!!!!!!!!!!!!

By: Anonymous

Anonymous — Mon, 12 Jun 2006 14:50:44 +0000

Average vs. Geometric Average

Be sure you are using geometric means when reporting your returns. This article tells you how and why it is important.

By: fivecentnickel.com

fivecentnickel.com — Sun, 11 Jun 2006 23:57:21 +0000

Weekly Roundup – 06/09/06

Here’s a quick look at a few things from the MoneyBlogNetwork (and beyond) that caught my eye over the past week…

MightyBargainHunter asks if one should pay down their mortgage or sock extra savings away in their ING Direct account (click…