Investment word of the day: Rolling returns – Why is it crucial for investors?

Investment word of the day: While investing in various funds and financial instruments, a need may often arise to track your investment in order to determine how your money is performing over a period of time. Rolling returns is one such measure that helps to estimate the performance of an investment at a certain period of time. Rolling returns, also known as rolling period returns or rolling time periods, assess the average annual returns for a specific period, which is typically a week, month, or any other defined period. Difference between rolling return and CAGR While CAGR measures return over a fixed period, rolling returns show returns over overlapping periods - 1-year, 3-years or 5-years- on a rolling basis, capturing fluctuations over multiple periods. If the fund had a significant market rally towards the end of the timeframe, the return does not accurately demonstrate how consistent the fund was.” “Rolling returns mitigate these discrepancies where numerous start and endpoints are utilized, and instead aid investors in understanding how an investment performs under varying market conditions,” he added.