A 2% monthly return is not 24% a year – compounded, it is about 26.8%. Annualizing makes returns over different period lengths comparable. Be careful annualizing very short periods: a lucky week rarely repeats 52 times.
How to use the Annualized Rate of Return Calculator
- Period of the return
- Return for the period
- Every result field is editable: type into Annualized rate of return and Return for the period plus every other field update to match.
Results update as you type, and every field accepts the units shown in its menu.
How it works
Choose the length of the period and enter the return earned over it.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Period of the return | Choose one: Daily, Weekly, Monthly, Quarterly … |
| Return for the period | In % |
What each result means
- Annualized rate of return = ((1 + [Return for the period]÷100)^[Period of the return] – 1)×100
- Simple (non-compounded) annual rate = [Return for the period]×[Period of the return]
Example values
How the main result changes when Return for the period changes and everything else stays at the example values above:
| Return for the period (%) | Annualized rate of return (%) |
|---|---|
| 2.5 | 10.38 |
| 3.75 | 15.87 |
| 5 | 21.55 |
| 6.25 | 27.44 |
| 7.5 | 33.55 |
| 10 | 46.41 |
Formula
Annualized return = (1 + periodic return)^(periods per year) − 1Periodic return = (1 + annual return)^(1 ÷ periods per year) − 1Worked example
Inputs — Period of the return: Quarterly; Return for the period: 5 %.
Results — Annualized rate of return = 21.55 %; Simple (non-compounded) annual rate = 20 %.
Frequently asked questions
How do I annualize a monthly return?
Raise (1 + monthly return) to the 12th power and subtract 1.
Why not just multiply by 12?
That ignores compounding and understates the yearly return.
Is annualizing short-term returns reliable?
Not very – short-term returns are volatile and rarely repeat.
What formula does the Annualized Rate of Return Calculator use?
Annualized return = (1 + periodic return)^(periods per year) − 1.