Average Return

AAA

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.

INVESTOPEDIA EXPLAINS '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?​

 

RELATED TERMS
  1. Sacred Cow

    A firmly held mainstream belief that is considered to be true ...
  2. Compound Net Annual Rate - CNAR

    The return on an investment after taking tax implications into ...
  3. Neoclassical Growth Theory

    An economic theory that outlines how a steady economic growth ...
  4. Annual Return

    The return an investment provides over a period of time, expressed ...
  5. Average Annual Return - AAR

    A percentage figure used when reporting the historical return, ...
  6. Actual Return

    The actual gain or loss of an investor. This can be expressed ...
Related Articles
  1. Overcoming Compounding's Dark Side
    Investing Basics

    Overcoming Compounding's Dark Side

  2. Find The Highest Returns With The Sharpe ...
    Bonds & Fixed Income

    Find The Highest Returns With The Sharpe ...

  3. Compound Annual Growth Rate: What You ...
    Forex Education

    Compound Annual Growth Rate: What You ...

  4. Using Normal Distribution Formula To ...
    Investing Basics

    Using Normal Distribution Formula To ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center