Gyroscopic Investing

I was looking at the PP performance stats on Crawlingroad.com at https://web.archive.org/web/20160324133 ... l-returns/. I was curious about the average performance of each asset class, so I averaged each column.  It seems to show very high performance for stocks, bonds, and gold - much higher than I was expecting.  When I average each column, starting in 1972, I get 11.46% average return for the US stock market, 9% average return for 30 year treasuries, 7.03% average return for cash, and 11.97% average return for gold. 

Lower down on the page, CraigR says that the average return for the total stock market since 1972 is 9.7%.  That is almost 2% lower than 11.46%.  So, why is the data broken down by year showing stock market returns that are so much higher?  Did I make an math error somewhere, perhaps related to compounding?  Are the other stats for cash, treasuries and gold accurate?  I'm guessing I am missing something important, but I'm not sure what I am doing wrong.  Is averaging each column the wrong way to determine average annual performance?

Thanks!

Averaging doesn't work because the percentages are multiplication factors. If you think about this very simple case, an imaginary investment where in year 1 your money gains +50% and in year two your money loses -50%. You might think that you end up with the same amount you started with, but that's not actually true. If you invested 100$, you would have 150$ after year one, and 75$ after year two.

The correct formula can be found here: http://www.investopedia.com/terms/c/cagr.asp

jason wrote: I'm guessing I am missing something important, but I'm not sure what I am doing wrong.  Is averaging each column the wrong way to determine average annual performance?

You're confusing the average return and the compound annual growth rate.

http://www.assetplay.net/article/basics ... erage.html

(just a quick example that shows the difference)

Thanks.  That makes a lot more sense.  Please excuse my ignorance.