It’s time for a vocabulary headache. Today’s guest stars are “accumulative” and “cumulative”. We’ll get to what those words mean in the context of investment return in just a moment.
Before we can do that, though, we have to sort out precisely what those words mean and how they differ from each other. There is a very fine line between them in the way that they differ, so pay close attention.
Accumulative: Accumulative is an adjective that applies to something gradually growing or increasing over time. Synonyms for accumulative may include snowballing, amassing, intensifying, etc.
Cumulative: Cumulative is an adjective that applies to something that is increasing due to a combination of independent reasons. Synonyms for cumulative may include chaining, piled, grouped, etc.
Notice: The main difference in the two words are the fact that cumulative encompasses one increase after another, while accumulative refers to one growth as a whole. For example, one might refer to “their cumulative GPA,” which one collects after adding together all the increases or decreases of their separate grades in each class.
On the flip side, someone might talk about “the accumulative damage of rainfall,” which would refer to the gradually increasing damage caused by rainfall over time, with no other factors and no additions to be considered.
In the Context of Investment
Now, we can discuss what you all came here to learn: What the difference between accumulative and cumulative investment return is.
The first thing to understand is that there is no such thing as an accumulative investment return. Save yourself the trouble searching for advice on accumulative investment returns by not doing so at all. Nothing will come up in your search.
In the context of investment, cumulative investment return is what’s usually talked about. As you might guess by the definition that we discussed above, you find the cumulative return by factoring in all the different gains and losses made over time to show the current total investment return.
The data can then be analyzed to decide whether or not it’s a smart idea to continue your investment – alternatively, an analysis can help you determine how much more – or less – money you want to put into the investment if you choose to continue.
Cumulative investment returns can be roughly calculated by subtracting the original investment amount from the current value of the stock and then dividing that number by the initial investment amount again. Lastly, subtract one from that number. After converting the final result to a percent, you have your cumulative return for any given any.
While an “accumulative” return isn’t correct terminology, a term usually mentioned in comparison to cumulative returns is the “annualized return,” which looks at the investment return in any given year rather than any point in time like cumulative returns can do.
Annualized returns must be compared side by side while cumulative interest maps out the gain for all time. Comparing the two against each other provides valuable information on the patterns of how poorly or how well your investments are holding up.
In summary, knowing the difference between accumulative and cumulative can be important when working in an economic context, and your cumulative investment return is a valuable tool in monitoring the ups and downs of your investments.
When you are thinking about investing somewhere, you should look through some other articles as well that I wrote about:
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