Evaluate your investment performance over time with our Annualized Return Calculator. This tool helps you understand the geometric mean return of your portfolio, allowing for easy comparison between different assets and timeframes.
Simple Calculator Browser: Annualized Return
Annualized Return Formula:
Annualized Return = [(Ending Value / Initial Value)(1 / Years) – 1] × 100
Formula Source: Investopedia – Annualized Rate of Return
Variables:
- Initial Investment: The amount of money originally put into the asset.
- Ending Value: The current market value or total value at the end of the period.
- Duration (Years): The total length of time the investment was held, expressed in years.
What is the Annualized Return?
The annualized return, often referred to as the Compound Annual Growth Rate (CAGR), provides the geometric mean return of an investment over a specific period. Unlike a simple average return, it accounts for the compounding effect, making it the industry standard for measuring long-term performance.
By normalizing returns into an annual figure, investors can accurately compare a stock that gained 50% over three years against a bond that gained 15% over one year.
How to Calculate Annualized Return (Example):
- Identify your starting balance (e.g., $10,000).
- Identify your final balance (e.g., $15,000) and time (e.g., 5 years).
- Divide final by initial: $15,000 / $10,000 = 1.5.
- Raise the result to the power of (1 / years): 1.5(1/5) ≈ 1.0845.
- Subtract 1 and multiply by 100: (1.0845 – 1) × 100 = 8.45%.
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Frequently Asked Questions (FAQ):
What is a good annualized return? Generally, a return that outperforms inflation and relevant market benchmarks (like the S&P 500) is considered good, typically ranging from 7% to 10% for equities.
Can annualized return be negative? Yes. If the ending value is lower than the initial investment, the annualized return will be a negative percentage, indicating a loss.
Is CAGR the same as Annualized Return? Effectively, yes. CAGR is the most common mathematical method used to express annualized returns over periods longer than one year.
Does this include dividends? To get an accurate total return, you should add any dividends or interest received to your “Ending Value” before calculating.