InvestorQ : Which approach should I use; trailing returns or rolling returns when evaluating a stock?
Dia Deshpande made post

Which approach should I use; trailing returns or rolling returns when evaluating a stock?

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Ria Jain answered.
1 year ago
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While the choice is entirely yours, you need to understand that there are some clear benefits in using the rolling returns over the trailing returns of a stock or a fund. Let us look at these merits.

Firstly, over longer periods of time rolling returns tend to absorb the vagaries of the market and gives you a smooth picture of the fund performance. When you compare mutual funds, you must compare them on rolling returns rather than on trailing returns. They are less vulnerable to volatility of markets.

If the trailing returns and rolling returns are around similar levels over longer periods of time, then it indicates that the fund has delivered consistent performance and the timing of the entry and exit is not too critical. Such funds can be a good investment vehicle to combine wealth creation with consistency. This is more so in case of long term wealth creation or for your financial plan where consistency matters a lot.

From a practical standpoint, rolling returns are more workable. That is because investors rarely commit money on a lump sum basis. Most of your investments are in the form of a systematic investment plan (SIP) at regular intervals. In such a situation, rolling returns are more credible.

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