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Mysunsai t1_iy2ccef wrote

The long term average return of the stock market as a whole is around 10% annually. This includes any effects of compounding you choose to name, whether you want to call them “negative” or “positive” or any other label.

That return is a long term average over more than 30 years, any particular year (or 2 years, or 5 years, or 10 years) is quite unlikely to be exactly 10%. Some periods are higher, some are lower.

It is perfectly true that a drop of 50% requires a gain of 100% to break even. But that doesn’t mean anything new or interesting, long term market return calculations already include all price changes by definition, including both the 50% loss and the 100% gain.

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HopefulInformation OP t1_iy2dosi wrote

Thank you. Here’s the link: https://www.investopedia.com/articles/06/compoundingdarkside.asp.

It talked about the DJI and how instead of it being a 10% return it was much lower compounded growth

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Mysunsai t1_iy2f8z0 wrote

It’s true that “average returns” are not particularly interesting to look at, and do not take into account the effects of compounding.

That’s also both irrelevant and highly misleading, since when people actually talk about stock market returns, they are using average annual growth rate (also known as compound annual growth rate), not average returns. That’s what the 10% number commonly discussed is.

And that number is also the stock market as a whole weighted by market cap, not the DJIA which is 30 companies weighted by stock price.

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