Financial Analyst & Investment Strategist
Use this Annualized Return Calculator, one of the best tools for essential statistical finance, to instantly determine the true compounded annual growth rate (CAGR) of any investment.
Annualized Return Calculator
Calculated Result
Annualized Return (CAGR) Formula
The core relationship for compounded return (without periodic contributions) is:
$$FV = PV \times (1 + R)^N$$Where the variable being solved for determines the rearrangement:
To Find Rate (R): $R = \left(\frac{FV}{PV}\right)^{\frac{1}{N}} – 1$
To Find Years (N): $N = \frac{\ln(FV / PV)}{\ln(1 + R)}$
Formula Sources: Investopedia: Annualized Return, Corporate Finance Institute: CAGR
Variables Explained
- Initial Investment (PV): The principal amount invested at the beginning of the period.
- Final Value (FV): The total value of the investment at the end of the period, including growth and dividends.
- Number of Years (N): The total duration (in years) of the investment. Can be a fractional number.
- Annualized Return Rate (R): The compounded annual growth rate (CAGR) of the investment.
Related Calculators
You might also be interested in these related financial tools:
- Compound Interest Calculator
- Investment Goal Tracker
- Future Value of Annuity
- Net Present Value (NPV) Analysis
What is Annualized Return?
Annualized Return, often referred to as Compound Annual Growth Rate (CAGR), is a statistical measure that provides the average geometric return an investment has generated per year over a specified period. Unlike simple arithmetic average return, CAGR smooths out volatility and assumes that profits are reinvested, offering a more accurate picture of growth.
It is one of the most important stats in finance because it allows investors to compare the performance of different investments, regardless of the differing timeframes, by bringing all returns to a common, standardized annual rate. If your investment grew 50% in 5 years, this calculator tells you the constant rate of growth that would have achieved the same result.
Using annualized return is key for long-term strategic planning and benchmarking against market indices. A return must always be considered in the context of time; annualized return provides this essential context.
How to Calculate Annualized Return (Example)
- Define Inputs: Suppose you invested $10,000 (PV) and after 7 years (N), the investment grew to $18,000 (FV).
- Setup the Formula: We are solving for the Rate (R). $R = (\frac{FV}{PV})^{\frac{1}{N}} – 1$
- Substitute Values: $R = (\frac{18,000}{10,000})^{\frac{1}{7}} – 1$
- Calculate the Growth Factor: $1.8^{0.142857} \approx 1.0858$
- Final Calculation: $R = 1.0858 – 1 = 0.0858$. The Annualized Return is 8.58%.
Frequently Asked Questions (FAQ)
No. Simple return is the arithmetic average and ignores compounding. Annualized return is the geometric average and assumes growth is reinvested, making it the superior metric for measuring investment performance over multiple periods.
Why are my results negative?A negative annualized return occurs when the Final Value (FV) is less than the Initial Investment (PV). This indicates a net loss over the investment period.
Can I use this for non-whole years?Yes. The ‘Number of Years’ (N) can be a decimal, such as 3.5 years. The calculator handles fractional exponents correctly.
What if I made monthly contributions?This calculator is for calculating the CAGR of a lump-sum investment. For investments with regular contributions (annuities), a more complex Time Value of Money (TVM) calculator is required, as it must account for the timing of each cash flow.