How to Calculate Annualized Rate

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Annualized Rate of Return Calculator

Calculate the geometric mean of your investment performance over time.

Years Days Months
Annualized Rate (CAGR) 0%
Total Absolute Return 0%
Total Profit/Loss $0

Understanding the Annualized Rate of Return

The annualized rate of return, often referred to as the Compound Annual Growth Rate (CAGR), is the geometric mean of the amount of money earned by an investment each year over a given time period. Unlike a simple average, the annualized rate accounts for the effects of compounding.

The Annualized Return Formula

Annualized Rate = [(Ending Value / Initial Value) ^ (1 / n)] – 1

Where n is the number of years. If you are calculating for days, n becomes (Number of Days / 365).

Practical Example

Imagine you invested $10,000 in a stock portfolio. After 3 years, the portfolio is worth $13,310.

  • Step 1: Divide the ending value by the starting value ($13,310 / $10,000 = 1.331).
  • Step 2: Raise that number to the power of 1 divided by the years (1.331 ^ (1/3) = 1.1).
  • Step 3: Subtract 1 from the result (1.1 – 1 = 0.10).
  • Result: Your annualized rate of return is 10%.

Why Use Annualized Rates?

Annualizing returns is critical when comparing investments that were held for different periods of time. For example, comparing a 5% return over 6 months to a 12% return over 2 years is impossible without converting both to an annualized figure. It levels the playing field, showing you which investment truly performed better on a per-year basis.

function calculateAnnualRate() { var initial = parseFloat(document.getElementById('initial_value').value); var ending = parseFloat(document.getElementById('ending_value').value); var timeVal = parseFloat(document.getElementById('time_period').value); var timeUnit = document.getElementById('time_unit').value; var resultArea = document.getElementById('result_area'); if (isNaN(initial) || isNaN(ending) || isNaN(timeVal) || initial <= 0 || timeVal = 0 ? "+$" : "-$") + Math.abs(profitLoss).toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); resultArea.style.display = 'block'; }

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