Definition of Annual Return

• Annual return is defined as the 52-week increase in the price of an investment. The annual return is stated as a percentage and is a measure of an asset's growth. A percentage portrayal allows for a simple comparison. An investor can find out if current investments are performing well in comparison to alternatives.
  
  

Average Annual Return

• Investors want to know if they are making money not only in a given year but over several years. The stock market is volatile. The worst year for stock market performance over the years 1928 through 2010 was 1931. The market declined -43.84 percent that year. The market's best year was 1954 when the market rose +52.56 percent. The market's changeable increases and declines create havoc with an investor's desire to know whether or not a portfolio is growing in value and creating wealth. The average annual return provides this information. The arithmetical average annual return is computed by adding the annual returns for a number of years and dividing by that number.
  
  

Average Annual Stock Market Performancee

• The annual average return for stocks from 1928 through 2010 was 11.31 percent. The average annual return for 2001-2010 was 3.54 percent. The worst decade over the 82-year period was 1929 through 1938. Average annual return was negative -0.9 percent. The best decade over the same period was 1948 through 1958 with an average annual return of +20.10 percent.
  
  

Personal Stock Portfolio Performance

• No one's portfolio matches stock market performance exactly. Returns are based on an all-stock portfolio and all of the stocks in a particular index. No individual has all the stocks comprising an index in their portfolio and no other investments. Individuals usually buy and sell some holdings during the year. Returns diverge from market performance when purchases occur over the 52-week period. Prices may range widely over the course of a year.
  
  

Comparing Returns

• Investors need to compare personal rates of return with that of comparable indices. The Lipper research firm publishes stock mutual fund performance data for various categories, including large, mid-cap and small cap stocks. You can find the indexes in The Wall Street Journal Market Data Center. Morningstar is another research firm with detailed market performance data available on its website.