Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Converting a multi-year total change into one compound annual rate is what actually makes two investments held for different lengths of time comparable at all. A 50% total gain over two years and a 50% total gain over ten years represent very different annual performance, and the raw total-return figure alone can't distinguish between them.
Before you rely on it
What to check
Confirm the holding period used matches the actual dates the investment was held, since the annualized rate is highly sensitive to getting that period right.
The common error
Where people go wrong with annualized return calculator
Comparing two investments' total returns directly without annualizing, when the two were held for meaningfully different lengths of time. The same total gain over a shorter period represents dramatically stronger annual performance.
Sensitivity evidence
How beginning value changes the annualized return
| Beginning value | Annualized return | Total return |
|---|---|---|
| $8,000 | 14.9% | 100.0% |
| $9,000 | 12.2% | 77.8% |
| $10,000worked example | 9.9% | 60.0% |
| $11,000 | 7.8% | 45.5% |
| $12,000 | 5.9% | 33.3% |
Every input, tested
Which input moves the annualized return most
| Input | Tested from | To | Annualized return at each end | Swing |
|---|---|---|---|---|
| Ending value | $14,400 | $17,600 | 7.6% to 12.0% | 4.4% (45%) |
| Beginning value | $9,000 | $11,000 | 12.2% to 7.8% | 4.4% (45%) |
| Holding period | 4.0 years | 6.0 years | 12.5% to 8.1% | 4.3% (44%) |
Two variables at once
Annualized return by beginning value and ending value
| Beginning value \ Ending value | $12,800 | $16,000 | $19,200 |
|---|---|---|---|
| $8,000 | 9.9% | 14.9% | 19.1% |
| $9,000 | 7.3% | 12.2% | 16.4% |
| $10,000 | 5.1% | 9.9% | 13.9% |
| $11,000 | 3.1% | 7.8% | 11.8% |
| $12,000 | 1.3% | 5.9% | 9.9% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Beginning value | $10,000 |
| Ending value | $16,000 |
| Holding period | 5.0 years |
| Annualized return | 9.9% |
| Total return | 60.0% |
Where the inputs come from
Beginning value and ending value come from statements at the two dates, and the holding period is the time between them in years. For a period shorter than a year, the annualized figure extrapolates and can look huge, so treat a two-month result with caution. If money went in or out during the period, the ending value includes those flows and the result mixes performance with deposits.
When the result stops applying
It should not be applied to periods under a year without care. It ignores cash flows in and out, taxes and fees unless the values already reflect them. A high annualized figure from a short, lucky stretch is not a forecast.
What to compare it with
The CAGR and time-weighted return pages use the same formula with a different emphasis. For portfolios with deposits, use the money-weighted return page. Compare the result with the arithmetic average on the average return calculator to see the effect of volatility, and consider the after-tax version for taxable accounts.
People also ask
Frequently asked questions
What does annualized return mean?
It is the steady yearly rate that would turn the beginning value into the ending value over the holding period, allowing investments of different lengths to be compared.
Why annualize a short period with caution?
Extrapolating a two-month gain to a full year assumes the pace continues, which rarely holds and can produce misleading triple-digit figures.
Is annualized return the same as yearly return?
No. The yearly returns in a multi-year period differ, and the annualized figure is their compounded equivalent, usually lower than a simple average when returns vary.