Thread: Does Volatility Hurt Real Returns?

Originally Posted by rokid

Charmedboi82,

I'm not sure what your point is. I don't see where anyone on this thread said anything about averaging an average. However, you can take the average of a set of averages. For example, the average of 30 daily temperatures for the month can yield an annual monthly temperature.

Anyway, the discussion was about average returns, which don't take volatility into account, and annualized/geometric returns which do. Annualized returns are actually the average compound return over a period. Annualized returns are always lower than average returns. In addition, the greater the volatility, the greater the difference between the average return and the annualized return.

Call it what you will. In my mind, the difference that you referred to is adequately expressed by what I said. You just seem to refer to it by different terminology.

It's why it's very misleading when people quote what the market has done for the past decades. Just because it was up an average of X% doesn't mean that you would have received a return value as though it had gone up that average percent every year.

So, I really do believe it is the same thing. I just choose to express myself differently.