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Annualized returns help you assess the performance of an investment. Find out how annualized returns help you compare stocks and other assets.
An annualized return—also called an “annualized rate of return” or “compound annual growth rate” (CAGR)—measures the average rate of return per year for investments held for periods longer or shorter than one year. Annualized returns are helpful for comparing rates of return for investments you’ve owned for different time periods.
For example, an investment that doubles in value over five years—say, from $100 to $200—has increased 100% in total but about 15% on an annualized basis. One that doubles over 25 years is also up 100%, but the annualized return is around 3%.
This is the formula for calculating the annualized return of an investment held for less than one year (n = number of days):
[ (Ending value of investment / Beginning value of investment)365/n – 1 ] x 100
And this is the formula for calculating the annualized return of an investment held for a year or more (n = number of years):
[ (Ending value of investment / Beginning value of investment)1/n – 1 ] x 100
You can use an online calculator to compute annualized returns easily.
Example: “Looking at an investment’s annualized return, or CAGR, over a number of years smooths out the ups and downs, providing a better measure of performance.”
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