Historical Returns

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Definition of 'Historical Returns'

Historical returns are the returns that an investment has generated in the past. They are often used as a way to predict future returns, but it is important to remember that past performance is not necessarily indicative of future results.

There are a number of different ways to calculate historical returns. The most common method is to use the compound annual growth rate (CAGR). The CAGR is calculated by taking the ending value of an investment and dividing it by the starting value, and then taking the exponent of the annual return.

For example, if an investment starts at $100 and grows to $120 over a period of one year, the CAGR would be 20%. This means that the investment would have grown by an average of 20% per year over the period.

It is important to note that historical returns are not guaranteed. There is no guarantee that an investment will continue to generate the same returns in the future. In fact, there is a chance that an investment could lose money.

Historical returns are often used to compare different investments. This can be helpful for investors who are trying to decide which investment to make. However, it is important to remember that past performance is not necessarily indicative of future results.

When using historical returns to compare investments, it is important to consider the following factors:

* The length of the time period. The longer the time period, the more reliable the historical returns are likely to be.
* The type of investment. Different types of investments have different risk profiles. It is important to compare investments that are of similar risk.
* The fees associated with the investment. The fees associated with an investment can have a significant impact on its returns.

Historical returns can be a helpful tool for investors, but it is important to use them with caution.

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