Chart Calculations: How do we calculate the simple average annual price return?
How do we calculate the simple average annual price return over 5 or 10 years for our charts?
There are a wide variety of ways to figure average return. We use a very simple method, which is the same method most financial media uses.
Here’s a quick explanation of how we arrive at our chart numbers …
- Take the difference between where the index settled now and where it settled X years ago.
- Divide the resulting number (difference) by the settlement price from X years ago.
- Divide that resulting by X years.
Remember that these are price returns, not total returns (which have dividends factored in and are therefore higher).