Peter Guenther @PGuenther: "📊 Quick Investing Quiz Investor A..."

United Kingdom

📊 Quick Investing Quiz Investor A produced the following annual returns: 🔴 Year 1: −79% 🟢 Year 2: +211% 🟢 Year 3: +21% What was Investor A’s total return over the three years? A) +153% B) +51% C) −21% D) +21% Don’t calculate—just go with your intuition first! Correct answer: C) −21% Here’s what happened to a $1,000 investment: • Start: $1,000.00 • After Year 1 (−79%): $210.00 • After Year 2 (+211%): $653.10 • After Year 3 (+21%): $790.25 Despite an average annual return of +51%, the investor actually lost 21% over the three years. The lesson: Wealth compounds. Returns don’t add—they multiply. That’s why avoiding devastating losses is often more important than chasing spectacular gains. In this example +51% per year sounds like an outstanding investor, yet they still ended up poorer than when they started. It demonstrates why focusing on arithmetic averages instead of compounded returns can lead to very misleading conclusions. $SPX500 $BTC $MU (Micron Technology, Inc.) $NSDQ100 $NVDA (NVIDIA Corporation)

Not investment advice. The author may have financial interests in the mentioned instruments.