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The Path of Returns Matters Volatility Never Retires Average Return Return Path 1 Return Path 2 Year 1 10% 38% (22)% Year 2 10 23 (12) Year 3 10 33 (9) Year 4 10 29 21 Year 5 10 21 29 Year 6 10 (9) 33 Year 7 10 (12) 23 Year 8 10 (22) 38 Compound Annual Return 10% 10% 10% * Spending in the first year is calculated as a percentage (5%) of initial assets; after the first year, spending is assumed to grow with inflation.
The average compound annual return for the 10-year period is also much higher than in case of other portfolios, and it amounts to 48.70 percent.
In contrast with the simple annual return, one computes the compound annual return by assuming earnings and principal are being reinvested rather than by stretching or contracting the holding period.
Both plans average 10 percent compound annual return. Person A contributed $16,000 while Person B contributed $78,000.
The median compound annual return of our sample group was only 6.6%, compared with 12.2% for the Russell 2000 over a three-year period.
The median compound annual return of our sample group was only 6.6 percent, compared with 12.2 percent for the Russell 2000 over a three-year period.
In the last three years, the S&P 500 has a compound annual return slightly in excess of 18 percent, with bonds at a little more than 3 percent.