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.

INVESTOPEDIA EXPLAINS '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: Does Size Really Matter?
    Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

  2. Digging Deeper: The Mutual Fund Prospectus
    Mutual Funds & ETFs

    Digging Deeper: The Mutual Fund Prospectus

  3. Published Mutual Fund Returns Not Always ...
    Mutual Funds & ETFs

    Published Mutual Fund Returns Not Always ...

  4. What is the minimum amount of money ...
    Retirement

    What is the minimum amount of money ...

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center