What’s the Difference Between Average and Actual Rate of Return?

An average rate of return can mask losses over time, so what investors really want to keep an eye on is the actual rate of return.

A young investor uses a calculator to do the math on average rate of return vs. actual rate of return.
(Image credit: Getty Images)

If an investment adviser touts an impressive average rate of return, be very wary, because losses can “hide” among the gains and hinder your financial success. Let’s explore the meaning of average rate of return vs. actual rate of return.

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Carlos Dias Jr., Wealth Adviser
Founder and President, Dias Wealth LLC

Carlos Dias Jr. is a financial adviser, public speaker and president of Dias Wealth LLC, in the Orlando, Florida, area, offering strategic financial planning services to business owners, executives, retirees and professional athletes. Carlos is a nationally syndicated columnist for Kiplinger and has contributed, been featured or quoted in over 100 publications, including Forbes, MarketWatch, Bloomberg, CNBC, The Wall Street Journal, U.S. News & World Report, USA Today and several others. He's also been interviewed on various radio and television stations. Carlos is trilingual, fluent in both Portuguese and Spanish.