Nerdwallet Calculator

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Reviewed by David Chen, CFA | Expert Financial Analyst

Use our nerdwallet calculator to determine the geometric average amount of money earned by an investment each year over a given time period. Whether you are analyzing stocks, mutual funds, or real estate, this tool helps you normalize returns for accurate comparison.

Annualized Return Calculator

Nerdwallet Calculator Formula

$$Annualized\ Return = \left[ \left( \frac{Final\ Value}{Initial\ Value} \right)^{1/n} – 1 \right] \times 100$$

Source: Investopedia Financial Terms | CFI Guide

Variables Explained

• Initial Investment ($): The principal amount you started with.
• Final Value ($): The current or ending value of the investment.
• Duration (Years): The time span of the investment in years (can be decimals).
• Annualized Return (%): The geometric mean return per year.

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What is Nerdwallet Calculator?

The annualized return is a measure of how much an investment has grown on average each year over a specific period. Unlike a simple total return, which just looks at the total gain, the annualized return accounts for the effect of compounding over time.

Financial experts use this metric to compare assets with different holding periods. For example, comparing a stock held for 3 years to a bond held for 10 years requires annualizing their performance to see which performed better on a relative time basis.

How to Calculate (Example)

1. Identify your starting principal ($10,000).
2. Determine the end value ($15,000) and time frame (5 years).
3. Divide the end value by the starting value (1.5).
4. Raise the result to the power of (1/years), which is 1/5 or 0.2.
5. Subtract 1 and multiply by 100 to get the percentage (8.45%).

Frequently Asked Questions (FAQ)

Why is annualized return different from average return?
Average return is an arithmetic mean, while annualized return is a geometric mean that accounts for compounding.

Can annualized return be negative?
Yes, if the final value is less than the initial investment, the result will be a negative percentage reflecting a loss.

Is this the same as CAGR?
Yes, Annualized Return and Compound Annual Growth Rate (CAGR) are mathematically identical.

Does this include dividends?
For accuracy, your “Final Value” should include all reinvested dividends or interest earned during the period.