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?