Question

If you are forecasting a few decades in the future (as you might do for retirement planning) you should calculate the expected return using:

Multiple choice question.

the geometric average


the arithmetic average


Blume's formula

Answer 1

When forecasting returns over a few decades, particularly for purposes like retirement planning, the appropriate method to use is **the geometric average**. The geometric average takes into account the compounding effect of returns over time and gives a more accurate representation of long-term investment growth than the arithmetic average, which does not factor in the effects of volatility and compounding.

So, the correct answer is **the geometric average**.