Finance guide
What Is Annualized Return?
Annualized return measures the average yearly return of an investment over time. It allows you to compare investments across different time periods on a consistent basis.
Why annualized return matters
Without annualization, it is difficult to compare investments that have been held for different lengths of time. Annualized return converts total performance into a yearly rate, making comparisons much clearer.
When to use annualized return
- comparing investments over different time periods
- evaluating portfolio performance
- benchmarking against market returns
Annualized return vs CAGR
Annualized return and CAGR are closely related. CAGR assumes smooth compounding, while annualized return may reflect actual variations depending on how it is calculated.