What are annualised returns?

December 16, 2022

Annualised investment returns refer to the average return on an investment over a period of time, typically one year. They are often used to compare the performance of different investments or to evaluate the performance of a single investment over time.

To calculate annualised returns, you will need to know the starting value of the investment, the ending value of the investment, and the length of the investment period in years. Here is the formula for calculating annualised returns:

Annualised return = (Ending value / Starting value) ^ (1 / Number of years) – 1

For example, if you invested $100 at the beginning of the year and the value of your investment increased to $110 by the end of the year, your annualised return would be:

Annualised return = ($110 / $100) ^ (1 / 1) – 1 = 10%

Annualised returns can be useful for comparing the performance of different investments, but it’s important to keep in mind that they are only an average and don’t necessarily reflect the actual returns that you might have received over the entire investment period.

In addition, annualised returns don’t take into account the effect of inflation, which can erode the purchasing power of your investment over time.

“Knowing is not enough; we must apply. Willing is not enough; we must do.” – Goethe

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