Average Annual Return - AAR

AAA

DEFINITION of 'Average Annual Return - AAR'

A percentage figure used when reporting the historical return, such as the three-, five- and 10-year average returns of a mutual fund. The average annual return is stated net of a fund's operating expense ratio, which does not include sales charges, if applicable, or portfolio transaction brokerage commissions.

BREAKING DOWN 'Average Annual Return - AAR'

When you are selecting a mutual fund, the average annual return is a helpful guide for measuring a fund's long-term performance. However, investors should also look at a fund's yearly performance to fully appreciate the consistency of its annual total returns. For example, a five-year average annual return of 10% looks attractive; however, if the yearly returns (those that produced the average annual return) were +40%, +30%, -10%, +5% and -15% (50 / 5 = 10%), the fund's recent performance (past three years) is absolutely awful.

RELATED TERMS
  1. Survivorship Bias Risk

    The possibility that an investor will make a misguided investment ...
  2. Unannualized

    A rate of return on an investment for a period other than one ...
  3. Annual Return

    The return an investment provides over a period of time, expressed ...
  4. Window Dressing

    A strategy used by mutual fund and portfolio managers near the ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Survivorship Bias

    The tendency for mutual funds with poor performance to be dropped ...
Related Articles
  1. Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  2. Mutual Funds & ETFs

    Digging Deeper: The Mutual Fund Prospectus

    The legal jargon of this document can be daunting. Find out how to get to the important stuff.
  3. Mutual Funds & ETFs

    Published Mutual Fund Returns Not Always What They Appear

    Survivorship bias erases substandard performers, distorting overall mutual fund returns.
  4. Mutual Funds & ETFs

    Top 5 Chinese Mutual Funds

    Learn about some of the most popular and best performing mutual funds that offer investors exposure to the important emerging market economy of China.
  5. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  6. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  7. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  8. Professionals

    Index or Target Dates in 401(k)s: Which is Better?

    A common question is whether or not plan participants should choose index or target date funds in a 401(k). The answer depends on different scenarios.
  9. Investing

    6 Reasons Why Every Investor Should Consider ETFs

    Once you understand the benefits of ETFs, you’ll see how they could be an exciting and smart way to help meet your financial goals. Here some key facts.
  10. Term

    What's an Investment Advisor?

    An investment or financial advisor makes investment recommendations and analyzes securities.
RELATED FAQS
  1. What average annual return does the oil and gas sector generate for an investor?

    The average annual return for investors generated between 2000 and 2013 by stocks in the oil and gas sector was approximately ... Read Full Answer >>
  2. What is the historic average annual return of the food and beverage sector?

    Although the food and beverage sector is subject to economic cycles, it has historically generated average annual returns ... Read Full Answer >>
  3. What average annual return is typical for a long term investment in the real estate ...

    Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year ... Read Full Answer >>
  4. What is a good annual return for a mutual fund?

    A "good" annual return on a mutual fund can only be gauged in a relative sense, influenced primarily by the investment goals ... Read Full Answer >>
  5. What average annual return does the financial services sector generate?

    The average annual return generated by the financial services sector depends on the period length used to calculate it. As ... Read Full Answer >>
  6. How can an investor profit from the increase in popularity of discount brokerages?

    Discount brokers generally don't improve profits by generating higher returns, although many purport to do just that. Rather, ... Read Full Answer >>
  7. What average annual return does the railroads sector generate?

    The transportation sector has long been an area where investors turn for steady growth, and the rail industry, making up ... Read Full Answer >>
  8. What average annual return does the forest products sector generate?

    There are a number of reasons why investors turn to the forestry industry as an alternative asset class within their portfolios. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!