What is Annualized Return?

• Jan 19, 2019 AEDT
• Team Kalkine

Annualized return is a return which investor earns on its investment each year over a given period. In other words, it simply measures an investment’s performance on a yearly basis and tells about how much investors will earn on their returns over the given period. It just shows the performance of the investment without giving any indication of the investment’s volatility or movement. If investors want to know how much its investments have incurred over the period, then he should look at its annualized returns.

How to Calculate Annualized Returns

Whenever investors make investments, they put their money in different assets for diversification and earn returns for different time zone. Suppose an investment of \$1,500 was made four years ago and now it has grown to \$1,850. In this case, the annualized returns will be 5.38 percent. Let assume that the investment has been growing at a constant rate, then the investment of \$1,500 would have grown to \$1,580.7 (end of the first year). At the end of the second year, the investment would have been \$1,665.7, and so on, at the end of the fourth year, the investment will appreciate to around \$1,850. Annualized returns compute as follows:

Annualized Return = [(1+ R) ^ 365/days held -1]

R = Cumulative Rate of return

Let’s have a look at returns for the different time period, i.e., Quarterly, Monthly, Weekly, and Daily:

• Quarterly Returns – Now we assume that an investor has 4% quarterly returns and we know that in a year we have four quarters, then the annual returns will be:

Annualized returns = [(1+0.04) ^365/90 – 1] = 17.2%

• Monthly Returns - Now we assume that an investor has 1.5% monthly returns and we know that in a year we have 12 months, then the annual returns will be:

Annualized Returns = [(1+0.015) ^365/30 – 1] = 19.9%

• Weekly Returns - Now we assume that an investor has 0.6% weekly returns and we know that in a year we have 52 weeks, then the annual returns will be:

Annualized Returns = [(1+0.006) ^365/7 – 1] = 36.6%

• Daily Returns - Now we assume that an investor has 0.15% daily returns and we know that in a year we have 365 days, then the annual returns will be:

Annualized Returns = [(1+0.0015) ^365/1 -1] = 72.8%

• 200 Days Returns – In this, we can calculate returns on any number of days and convert it into an annualized return. Now we assume that an investor has 7% returns over 200 days. Then the annual returns will be:

Annualized Returns = [(1+0.07) ^ (365/200)- 1] * 100 = 13.1%

Annualized return has one limitation i.e. if the investor wants to reinvest the return which is generated from the portfolio at the same rate, he/she might not get the same return. Suppose an investor earned 4% in a quarter and want to replicate the same return over the next quarter, he/she might not be able to replicate these returns due to the volatility or uncertainty within the market.

Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

All pictures are copyright to their respective owner(s).Kalkinemedia.com does not claim ownership of any of the pictures displayed on this website unless stated otherwise. Some of the images used on this website are taken from the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image.

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK