How to Calculate Annualized Returns

A 60% total return looks great until you find out it took 12 years to earn. Annualizing the number puts every investment on the same footing.

Step 1: Total Return

Total return = (Ending value − Starting value) / Starting value × 100

Example: $10,000 grows to $16,000. Total return = 60%.

Step 2: Time

Note how many years you held it. Partial years are fine — use the fraction.

Step 3: Plug Into the CAGR Formula

CAGR = (Ending / Starting)^(1 / years) − 1

For $10,000 → $16,000 over 5 years:

(16,000 / 10,000)^(1/5) − 1 = 1.6^0.2 − 1 ≈ 0.0986 → 9.86% per year

Step 4: Compare

Now you can compare against benchmarks:

• S&P 500 long-term: ~10% nominal, ~7% real
• Investment-grade bonds long-term: ~4–5%
• Cash savings (high-yield): ~4–5% today, lower historically

Step 5: Sanity Check

If your "annualized" return is much higher than the broad market, ask why — is it skill, leverage, lucky timing, or unmeasured risk? High annualized returns rarely persist forever.

The Easy Version

Skip the math: plug your numbers into the CAGR Calculator or the ROI Calculator. Both compute total and annualized in one step.

When Annualized Doesn't Apply

If you made multiple deposits and withdrawals, simple CAGR understates or overstates the truth. For irregular cash flows, time-weighted return or internal rate of return (IRR) are the right tools — most brokerages report these on your statements.

Bottom Line

Total return tells you what you earned. Annualized return tells you how fast — and is the only fair way to compare investments held for different periods.