Of course, in real investing, a 6% average return in an investment portfolio commonly includes high return years, low return years, and even some negative return years.
Alexis invests $3,000 a year for 40 years and receives an average annual return of 6%. At the end of 40 years, her portfolio is worth $492,143. This amount consists of $372,143 in total earnings plus her principal investment of $120,000. How did her portfolio grow so much? It's because every year Alexis's 6% return is on the new larger balance (made up of her initial investment, her subsequent yearly investments, and the money she's earned from dividends/interest and capital appreciation on the investment). That's the power of "compound returns." Of course, in real investing, a 6% average return in an investment portfolio commonly includes high return years, low return years, and even some negative return years.