<h1>Understanding Portfolio Performance: Which Investment is Better?</h1>
<p>I'll bet that 95% of you will not know the correct answer to this investing question. And if you get it, I'll take you out to Jersey Mike's for a sandwich.</p>
<p>I'm Tyler. I'm a former financial advisor and portfolio manager. And now I make financial content for free so that you don't have to pay for it.</p>
<h2>The Investment Question</h2>
<p>Number one, take two portfolios:</p>
<ul>
<li><strong>Portfolio A:</strong> makes 20% this year and 0% next year.</li>
<li><strong>Portfolio B:</strong> makes 10% this year and 10% next year.</li>
</ul>
<p>Which portfolio made more money after two years?</p>

<h2>The Answer</h2>
<p>Number two, if you said, well, they both made 10% per year, you're correct. But if you said they both made the same amount of money after two years, you are not correct.</p>

<h2>Evaluating Returns</h2>
<p>Number three, although both Portfolio A and Portfolio B averaged 10% per year, at the end of two years, Portfolio A will have earned 20% on two-year returns. While Portfolio B would have earned 21%.</p>