Average Annual Return


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Related to Average Annual Return: Average Annual Rate of Return

Average Annual Return

The sum of the return rates of an investment over a given number of years divided by that number of years. For example, if one wishes to compute the average annual return over five years and the returns in each year were 2%, 5%, 7%, 9% and 4%, the AAR would be 5.4% per year (27% / 5 years). The average annual return is useful when gauging an investment's current annual return with respect to its historical return. In the above example, one may conclude that because the annual return in the most recent year (4%) is below the AAR, the investment may not be advisable.
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