How do you annualize a return?

Annualized Return = (1 + Total Return)^(1/Years) - 1. For example, a 50% return over 3 years: (1 + 0.50)^(1/3) - 1 = 1.1447 - 1 = 14.47% per year.

What is a good annualized return?

The S&P 500 has historically returned about 10% annualized. Returns of 7-12% are considered average for stocks, above 12% is above average, and above 20% sustained is exceptional (and rare).

Annualized Return Calculator - Free CAGR Tool

Enter Values

Total Return

Your total holding period return

Time Period

years

e.g., 0.5 for 6 months, 2.5 for 2.5 years

Beginning Value

Initial investment amount

Ending Value

Final investment value

Time Period

years

e.g., 0.5 for 6 months, 2.5 for 2.5 years

Calculator by Ryan O'Connell, CFA

Quick Reference

CAGR = Compound Annual Growth Rate (same as annualized return)
Historical S&P 500 average: ~10% annualized
Use for comparing investments held different lengths of time
Be cautious annualizing returns for periods under 1 year

Annualized Return Result

Annualized Return (CAGR) 14.47% Above Average Strong performance

Monthly Equivalent 1.13%

Quarterly Equivalent 3.43%

Negative Average Exceptional

Formula Breakdown

Annualized Return = (1 + r)^(1/t) - 1

Interpretation

Your investment's annualized return is 14.47% per year. This is considered above average compared to historical market returns.

Rating Guide

< 0%	Negative	Losing money annually
0% to < 3%	Below Inflation	May not keep pace with inflation
3% to < 7%	Conservative	Bond-like returns
7% to < 12%	Average	Historical equity market range
12% to < 20%	Above Average	Strong performance
>= 20%	Exceptional	Outstanding (verify sustainability)

Understanding Annualized Return

What is Annualized Return?

Annualized return (also called CAGR - Compound Annual Growth Rate) converts any investment return to an equivalent yearly rate. This makes it possible to compare investments held for different lengths of time on equal footing.

In simple terms, annualized return answers: "What constant yearly rate would produce this same total return over this time period?"

Key Insight: A 50% return over 3 years sounds great, but what's the annual equivalent? Using the formula, (1.50)^(1/3) - 1 = 14.47% per year. Now you can compare it to other investments.

Why Annualize Returns?

Without annualization, comparing investments is difficult:

Investment A: 20% return over 1 year
Investment B: 50% return over 5 years

Which is better? Annualized: A = 20%/year, B = 8.4%/year. Investment A wins despite the lower total return.

CAGR vs. Average Return

Don't confuse annualized return (CAGR) with average return:

Year 1: +50%
Year 2: -50%

Average return: (50% + (-50%)) / 2 = 0%

CAGR: Start with $100, end Year 1 with $150, end Year 2 with $75. That's -13.4% annualized!

Caution: Annualizing returns for very short periods (under 1 year) can be misleading. A 5% monthly return annualizes to 79.6%, but such returns are rarely sustainable.

Historical Context

For perspective, here are historical annualized returns (1926-2023):

S&P 500: ~10% annualized
Small-cap stocks: ~12% annualized
Long-term government bonds: ~5% annualized
Treasury bills: ~3% annualized
Inflation: ~3% annualized

Frequently Asked Questions

Annualized return converts any investment return to an equivalent yearly rate. It allows you to compare investments held for different time periods. For example, a 50% total return over 3 years equals about 14.5% per year when annualized.

Annualized Return = (1 + Total Return)^(1/Years) - 1. For a 50% return over 3 years: (1 + 0.50)^(1/3) - 1 = 0.1447 or 14.47% per year. The formula accounts for compounding.

Annualized returns allow fair comparison between investments held for different lengths of time. A 20% return over 1 year is better than 50% over 5 years when annualized (20% vs 8.4%), which isn't obvious from total returns alone.

The S&P 500 has historically returned about 10% annualized. For stock investments, 7-12% is average, 12-20% is above average, and above 20% sustained is exceptional. Bond returns typically fall in the 4-6% range.

Yes, CAGR (Compound Annual Growth Rate) and annualized return are the same thing. Both represent the constant yearly rate that would produce the same total return over the given period, assuming returns compound annually.

Yes, annualizing returns over very short periods can be misleading. A 5% return in one month annualizes to 79.6%, but this rate is unlikely to be sustained. Use annualized returns primarily for periods of 1 year or more for meaningful comparisons.

Disclaimer

This calculator is for educational and informational purposes only. Annualized return is a historical measure and past performance does not guarantee future results. Be cautious when annualizing returns for periods under 1 year. Always consult with a qualified financial advisor before making investment decisions.

Annualized Return Calculator

Enter Values

Quick Reference

Annualized Return Result

Formula Breakdown

Interpretation

Rating Guide

Understanding Annualized Return

What is Annualized Return?

Why Annualize Returns?

CAGR vs. Average Return

Historical Context

Frequently Asked Questions

What is annualized return?

How do you annualize a return?

Why annualize investment returns?

What is a good annualized return?

Is CAGR the same as annualized return?

Can annualized return be misleading?

Disclaimer

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