Average Annual Growth Rate - AAGR

AAA

DEFINITION of 'Average Annual Growth Rate - AAGR'

The average increase in the value of an individual investment or portfolio over the period of a year. It is calculated by taking the arithmetic mean of the growth rate over two annual periods. The average annual growth rate can be calculated for any investment, but will not include any measure of the investment's overall risk, as measured by its price volatility.

INVESTOPEDIA EXPLAINS 'Average Annual Growth Rate - AAGR'

For example, if your portfolio grows 10% one year and 20% the next, your AAGR would be 15%. To this end, fluctuations in the portfolio's rate of return between the beginning of the first year and the end of the year are not included in the calculations, which may lead to some measurement error.

To reduce any possible measurement error, an analyst can simply take the average price at the beginning and end of the two measurement periods, and use those average prices to determine each year's return, and then the AAGR.

RELATED TERMS
  1. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  2. Compound Net Annual Rate - CNAR

    The return on an investment after taking tax implications into ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. When computing the PEG ratio for a stock, how is a company's earnings growth rate ...

    Remember that the price/earnings to growth ratio (PEG ratio) is simply a given stock's price/earnings ratio (P/E ratio) divided ... Read Full Answer >>
  2. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  3. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  5. What are some popular ETFs that track the industrial sector?

    As of April 2015, some of the most popular and best performing exchange-traded funds (ETFs) that track the industrial sector ... Read Full Answer >>
  6. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
Related Articles
  1. Markets

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  2. Forex Education

    Compound Annual Growth Rate: What You Should Know

    The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story.
  3. Economics

    Selecting A Second-Tier Company

    Find out why an industry's "little guys" can be big winners.
  4. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  5. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  6. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  7. Fundamental Analysis

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  8. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  9. Entrepreneurship

    8 Fascinating Traits Billionaires Have In Common

    A top-notch education isn't enough to strike it rich. Nothing compares to learning the habits of the world's famous entrepreneurs and industry leaders.
  10. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center