Return measurement
Annualized Return
A multi-period return converted to an equivalent compounded yearly rate.
What Annualized Return Means
Annualized return expresses growth as the constant yearly rate that compounds to the same endpoint. For one beginning and ending value, it is CAGR.
Annualized Return Formula
Annualized return = (Ending ÷ Beginning)^(1 ÷ years) − 1
How to Read the Result
$10,000 growing to $13,310 in 3 years has an annualized return of 10%.
Limitations
- Very short periods can annualize into implausible figures.
- External cash flows need another method.
- Fees, taxes, and inflation require consistent treatment.
Common Questions
Is annualized return an arithmetic average?
No. Annualized return is geometric and includes compounding.
Compound growth and regular investing
- Dollar-cost averagingDefinition
- Compound interest vs SIPComparison
- SIP vs lump sumComparison
- Compound interest calculatorCalculator
- CAGR calculatorCalculator