Annualized Return Calculator
Calculate the annualized return (CAGR) from your initial investment, final value, and holding period. This tells you the equivalent annual growth rate as if your investment grew at a steady rate each year. Compare with our CAGR calculator or check your rate of return including dividends.
How to Calculate Annualized Return
- Determine your initial investment amount and current (or final) value.
- Calculate the total return: (Final Value - Initial) / Initial.
- Determine the holding period in years (can include fractions).
- Apply the annualized return formula: (Final/Initial)^(1/years) - 1.
- Multiply by 100 to express as a percentage.
Formula
Annualized Return = (Final Value / Initial Investment)^(1/years) - 1
Total Return = (Final Value - Initial Investment) / Initial Investment
Also known as CAGR (Compound Annual Growth Rate):
CAGR = (Ending Value / Beginning Value)^(1/n) - 1
Where n = number of yearsExample
You invested $10,000 five years ago and it is now worth $18,000:
Initial Investment = $10,000
Final Value = $18,000
Holding Period = 5 years
Total Return = ($18,000 - $10,000) / $10,000 = 80%
Total Gain = $8,000
Annualized Return = ($18,000 / $10,000)^(1/5) - 1
= (1.80)^(0.20) - 1
= 1.1247 - 1
= 0.1247 = 12.47%
This means your investment grew at an equivalent rate of 12.47% per year.Annualized Return Reference Table
| Total Return | 3 Years | 5 Years | 7 Years | 10 Years |
|---|---|---|---|---|
| 20% | 6.27% | 3.71% | 2.64% | 1.84% |
| 30% | 9.14% | 5.39% | 3.82% | 2.66% |
| 50% | 14.47% | 8.45% | 5.96% | 4.14% |
| 75% | 20.51% | 11.84% | 8.32% | 5.76% |
| 100% | 25.99% | 14.87% | 10.41% | 7.18% |
| 150% | 35.72% | 20.11% | 13.99% | 9.60% |
| 200% | 44.22% | 24.57% | 16.99% | 11.61% |
| 300% | 58.74% | 31.95% | 21.90% | 14.87% |
| 500% | 81.71% | 43.10% | 29.17% | 19.62% |
Frequently Asked Questions
What is annualized return?
Annualized return is the geometric average amount of money earned by an investment each year over a given time period. It smooths out the volatility and shows what constant annual rate would produce the same total return.
Is annualized return the same as CAGR?
Yes, annualized return and CAGR (Compound Annual Growth Rate) are the same concept. Both calculate the constant annual rate that would grow an initial value to a final value over a specific period.
Why not just divide total return by years?
Simple division gives the average annual return, which ignores compounding. An 80% total return over 5 years is not 16% per year because compounding means each year's growth builds on the previous year. The true annualized return is 12.47%.
What is a good annualized return?
The S&P 500 has historically returned about 10% annualized (7% after inflation). Returns above 10% are considered good, above 15% excellent. Bond returns typically range 3-6% annualized.
Does this account for dividends?
If you include reinvested dividends in your final value, then yes. Otherwise, use the rate of return calculator which has a separate field for income received during the holding period.