Thursday, 15 December 2016

Why Return is Important

An asset's return is a key variable in the investment decision because it indicates how rapidly an investor can build wealth.

Naturally, because most people prefer to have more wealth rather than less, they prefer investments that offer high returns rather than low returns if all else is equal.

However, the returns on most investments are uncertain, so how do investors distinguish assets that offer high returns from those likely to produce low returns?

One way to make this kind of assessment is to examine the returns that different types of investments have produced in the past.

Historical Performance

Most people recognize that future performance is not guaranteed by past performance, but past data often provide a meaningful basis for future expectations.

A common practice in the investment world is to look closely at the historical record when formulating expectations about the future.

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