Explain the example in your own words and check the calculation.
A historical average describes a certain period; it is not a commitment to a future outcome.
Two investments with the same average can experience different swings. Correlation describes joint movement and does not prove causation. Choosing the start and end dates changes the return you show.
One year +50% and the next year −50%: 100 becomes 150 and then 75. The arithmetic average is 0%, but in reality there is a 25% loss.
Explain the example in your own words and check the calculation.
A fictional portfolio gains 20% one year and loses 20% the next. The arithmetic average is zero, but 100 becomes 120 and then 96. Each calculation uses the amount at that stage. Two years also do not describe every possible future outcome. Alongside an average, examine the spread of results, measurement period and any deposits or withdrawals. A historical average is not a promised annual payment. Describing an outcome does not replace examining the path that produced it.
Concepts that help you compare
Mean, Median and Sample
The mean is the sum of the values divided by their count; the median is the middle value in a sorted series. The mean is affected by extreme values. A sample is the group that was measured, and not necessarily the whole population. When site participants choose to participate voluntarily, that is not a representative sample. Popularity is not proof that a product is worth investing in.
Comparison example: For returns of 0%, 0%, 0%, 0%, 100%, the mean is 20% and the median is 0%. The single number “20%” does not tell the whole story.
Risk is the possibility that the outcome will be different from expected, including loss. Investments with higher potential returns often carry higher risk. Money held without change in the number of shekels is also exposed to erosion of purchasing power. It is important to understand when you will need the money and how much uncertainty you can bear.
Comparison example: Money for a trip in a week serves a different purpose than money for a distant goal.