Many financial advisors rely on risk-adjusted returns to evaluate investment performance. While that method considers theoretical risks, I prefer compound annual return (CAR) because it reflects actual results, including losses, rather than hypothetical scenarios.

Here’s how I use CAR to guide investment decisions:
1-Year Return: Helps identify underperforming stocks to consider removing.
5-Year Return: Captures meaningful performance, balancing typical market cycles.
15-Year Return: Serves as a reliable predictor for future 5-year trends.
25-Year Return: Best for long-term planning due to its conservative approach.

Compound annual return is my go-to metric because it accounts for the ups and downs of annual performance, giving a clearer picture of true growth over time.

Examples of CAR Across Investments:
SPY (S&P 500): 8% over 25 years, 13% over 15 years
Gold: 9% over 20 years
AAPL (Apple): 25% over 14 years
“Best fund I know of”: 18% over 25 years, 16% over 5 years
Stars Model: 17% over 25 years, 33% over 5 years

The Stars Model, with a 20% allocation to TQQQ, combines high returns with the diversification of 600 stocks—one of the best options I’ve found.

What metrics do you prioritize when assessing investments? Let’s discuss!