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A trailing return is a presentation of information that shows the investment return for a particular period of time. Trailing returns are normally evaluated every year. For example, if you have an investment with a trailing return of one year, you would expect to see returns over the previous twelve-month period.
The Purpose of Trailing Return Calculations
Trailing returns are often used as an investment comparison tool and commonly used as an economic indicator. The data for a trailing return will show how a stock, mutual fund or other security has performed in relation to other funds over a definitive time period.
The comparison generated from a traveling return can be applied in two ways: The first is by using the figure to calculate the amount of return earned during a trailing period and then compare that to its equivalents. Secondly, the traveling return calculation can be used to generate a percentage as opposed to an actual dollar amount.
How a Trailing Return Can Be Deceptive
Investors should certainly be aware of the trailing period of their investments. However, the information can prove to be deceptive. Trailing returns can virtually mask how volatile and risky an investment can be. Investors really need to educate themselves on an investment’s rolling time period returns to understand the full breadth of what their mutual fund or asset class is.
Before committing to any investment, it is very important for investors to take the time to review the prospectus for the opportunity. In the document, required by law, is all the information needed to make an educated investment decision. Review the trailing return, rolling time period returns, fees and all associated costs of the investment before committing money to it.
