Annualized Return Calculator
Calculate the geometric annualized rate of return for an investment, standardizing performance over a 12-month period regardless of the actual holding time.
Enter parameters on the left to calculate annualized return.
Understanding Annualized Return
The Annualized Return represents the geometric average amount of money earned by an investment each year over a given time period. Standardizing the return rate on a 12-month basis makes it easy to compare investments of vastly different holding periods fairly (e.g., comparing a 6-month stock trade to a 10-year property investment).
The Mathematical Formula
Annualized Return is calculated geometrically to account for compounding:
Where:
- Start Value = The initial capital or buy-in value.
- End Value = The final balance or sell price.
- n = The investment period in years (e.g. 0.5 years for 6 months, 5 years for 60 months).
Worked Example
Scenario: 6-Month Real Estate Trade
- Initial Capital: $100,000
- End Portfolio Value: $115,000 (after 6 months)
- Duration (n): 0.5 Years (182.5 Days)
Plugging the values into the formula: (115,000 / 100,000)(1 / 0.5) – 1 = 1.152 – 1 = 32.25%.
This shows that while your absolute gain was 15% in 6 months, your annualized return is 32.25%.