Average Return

DEFINITION of 'Average Return'

The simple mathematical average of a series of returns generated over a period of time. An average return is calculated the same way a simple average is calculated for any set of numbers; the numbers are added together into a single sum, and then the sum is divided by the count of the numbers in the set.

BREAKING DOWN 'Average Return'

For example, suppose an investment had returned the following annual returns over a period of five full years: 10%, 15%, 10%, 0% and 5%. To calculate the average return for the investment over this five-year period, the five annual returns would be added together and then divided by five. This produces an annual average return of 8%.

To learn more about average return, check out Why is the compound annual growth rate (CAGR) misleading when assessing long-term growth rates?​

 

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