1. 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 shows what an investor would earn over a period of time if the annual return was compounded.

2. How Does the Calculator Work?

The calculator uses the annualized return formula:

Where:

• \( \text{Total Return} \) — The entire return over the holding period (in decimal form)
• \( \text{Days Held} \) — Number of days the investment was held
• 365 — Number of days in a year (used for annualization)

Explanation: The formula converts a return over any time period into an equivalent annual return, allowing for comparison between investments with different holding periods.

3. Importance of Annualized Return

Details: Annualized return is crucial for comparing investments with different time periods. It standardizes returns to a one-year period, making apples-to-apples comparisons possible.

4. Using the Calculator

Tips: Enter total return as a decimal (e.g., 0.10 for 10%) and the number of days the investment was held. Both values must be valid (days > 0).

5. Frequently Asked Questions (FAQ)

Q1: Why use annualized return instead of total return?
A: Annualized return allows comparison between investments with different holding periods, while total return doesn't account for time.

Q2: What's a good annualized return?
A: This depends on the asset class. Historically, stocks average 7-10%, bonds 3-5%, but returns vary by market conditions and risk level.

Q3: How does this differ from CAGR?
A: Annualized return and CAGR (Compound Annual Growth Rate) are essentially the same concept, both showing the geometric average growth rate.

Q4: Can annualized return be negative?
A: Yes, if the total return is negative, the annualized return will also be negative, indicating a loss.

Q5: Should I use 365 or 252 days?
A: For most investments, 365 days is standard. Some professionals use 252 trading days for stock market returns.