Average Monthly Return Formula

Average Monthly Return Formula:

\[ AMR = \left( \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{12}} - 1 \right) \times 100 \]

Average Monthly Return (AMR):

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1. What is Average Monthly Return?

Average Monthly Return (AMR) is a financial metric that calculates the average rate of return per month over a one-year period. It helps investors understand the monthly performance of their investments and compare different investment opportunities on a consistent monthly basis.

2. How Does the Calculator Work?

The calculator uses the Average Monthly Return formula:

\[ AMR = \left( \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{12}} - 1 \right) \times 100 \]

Where:

$ \text{Ending Value} $ — The final value of the investment after one year ($)
$ \text{Beginning Value} $ — The initial value of the investment at the start of the year ($)
$ \frac{1}{12} $ — Represents the 12th root for monthly compounding
$ \times 100 $ — Converts the decimal result to a percentage

Explanation: The formula calculates the geometric mean return per month, accounting for the compounding effect over the 12-month period.

3. Importance of AMR Calculation

Details: AMR provides a standardized way to compare investment performance across different time periods and asset classes. It's particularly useful for evaluating monthly investment strategies, mutual funds, and portfolio performance.

4. Using the Calculator

Tips: Enter the beginning value and ending value in dollars. Both values must be positive numbers. The calculator assumes a one-year time period for the calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between AMR and annual return?
A: AMR shows the average monthly performance, while annual return shows the total performance over one year. AMR helps understand monthly consistency.

Q2: Can AMR be negative?
A: Yes, if the ending value is less than the beginning value, AMR will be negative, indicating an average monthly loss.

Q3: How is AMR useful for investors?
A: AMR helps investors compare different investments, assess monthly performance consistency, and make informed decisions about portfolio allocation.

Q4: Does AMR account for compounding?
A: Yes, the formula uses geometric mean which properly accounts for the compounding effect of returns over time.

Q5: What are typical AMR values for different asset classes?
A: Stocks typically range from 0.5% to 1.5% AMR, bonds 0.2% to 0.8%, while cash equivalents are usually below 0.3% AMR.