When making an investment decision

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The informative value of the average historical return (golden graph) can be described as follows: The security (in our case the German stock index) has changed on average by x% (+6.01%) each year in the defined period (between December 29, 1989 and September 30, 2022): ((End value⁄Start value)^((1⁄Time) ) )-1, with end value as of September 30, 2022: 12,114.36 points; start value as of December 29, 1989: 1,790.37 points; time: 32.75278 years.

The reality, however, was certainly different, as the blue graph illustrates: prices of securities fluctuate and thus their value also fluctuates.

Sometimes prices rise more strongly, for example between 1995 and 2000 (between June 30, 1995 and February 29, 2000, the average annual historical return of the DAX30 was 32.12%), sometimes more weakly.
Sometimes they fall more sharply, for example in the years 2000 to 2003 (between March 31, 2000 and March 31, 2003, the average annual historical return of the DAX30 was -31.68%), and then they cameroon consumer email list​ fall more weakly. On average, however, the change over the entire defined period was x% (+6.01%) per year.
As you can see, fluctuation, also known as volatility, plays an extremely important role in the valuation of a security, in addition to the return. However, this controversial topic should be part of a separate article.

The expected return
you are now faced with the task of assessing how a defined security could develop in a defined period of time in the future. And to anticipate: Nobody - at least nobody that I know of - can predict the future. It therefore seems most sensible to use historical values ​​for a forecast. This suggests that scenarios that have occurred in the past will occur again.

The last sentence should not be taken literally, but should always be viewed against the background of Mark Twain's quote: History will not repeat itself exactly. But the direction will probably be right and in most cases we will be able to recognize parallels.