To calculate the expected return using historical data, you’ll want to take an average of each outcome. Here’s an example of what that would look like.
Year | Return |
---|---|
2000 | 14% |
2001 | 2% |
2002 | 22% |
2003 | 34% |
2004 | 5% |
2005 | -18% |
2006 | -21% |
2007 | 29% |
2008 | 6% |
2009 | 16% |
2010 | 22% |
2011 | 1% |
2012 | -4% |
2013 | 8% |
2014 | -11% |
2015 | 31% |
2016 | 7% |
2017 | 13% |
2018 | 22% |
Average | 9% |
In this example, the average rate of return is 9%. When using historical data, you may want to consider your pool of data. Are you using all of the data available? Or only data from a select period? If you are only using some data and not others, why?