Your 'Average Annual Return' is a Lie

Anytime you are looking at the annual average performance of any investment, it is vital to check how that performance has been calculated. Most of the time - especially for promotional material - they use the arithmetic mean. The only problem with this is that it is wrong. Instead, you need to use the geometric mean which accounts for compounding. This is also called CAGR, or Compounding Annual Growth Rate.

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