In the first edition of Decoding Returns, we introduced Returns & got familiar with some statistical tools to measure them. We would now try to understand a few more attributes of Returns as to which form of Returns to be used When & Why, because ultimately it all boils down to the fact that in our quest for Yeh Dil Manage More, somewhere we have to strike a balance between Risk & Reward and act rational & unbiased.
A question invariably surfaces, Is it really required to break our heads over so many complexities? The answer is a Big YES, cause it greatly impacts our entire investment journey & the ultimate outcome. Various statistical tools to measure returns help with deciding whether an investment is right for a portfolio, based on individual goals, risk tolerance & Time horizon for investing. As it is rightly said, Investigate & Invest, rather than jumping into an investment decision only to conclude that its not our cup of tea or it doesn’t suit us….
We have considered some actual data points to explain how radically different is the picture when the returns are expressed in different formats for the same investment avenue. Let us check the following:
TABLE I – The Most popularly used representation of Returns
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