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Annualized ROI Calculator

Find your annualized return on investment.

How it is calculated

Annualized ROI is the constant yearly rate that would produce the same total return: annualized = ((1 + total / 100)^(1 / years) − 1) × 100. The total return is a percentage over the whole holding period, and years is the length of that period, which can be a fraction (18 months is 1.5). The calculation uses compounding, so it is not simply the total divided by the years. Years must be greater than zero, and a total return of −100% or lower gives no result, since nothing would be left. The formula assumes there are no deposits or withdrawals in between, and past performance does not predict future returns.

Worked example

An investment grew 50% in total over 3 years. 1 + 50 / 100 = 1.5. Raise to the power 1/3, which is the cube root: 1.5^(1/3) = 1.1447. Subtract 1 and multiply by 100: 14.47%. A simple average would suggest 16.67% a year, which overstates it.

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Common mistakes

  • Dividing the total return by the number of years, which ignores compounding and overstates the rate.
  • Entering the total as a decimal (0.5) instead of a percentage (50).
  • Entering months as years: 18 months is 1.5, not 18.
  • Using the formula for an account with regular contributions, where money-weighted returns are needed.
  • Comparing annualized figures from very short periods, which are hugely sensitive and not a forecast.

Sources

About this calculator

This calculator converts a total return earned over an arbitrary holding period, whether that's eight months or six years, into an equivalent annual rate, making it possible to compare investments that were held for different lengths of time on the same footing. A large total return over many years can actually represent a lower annual rate than a smaller return earned quickly, and this normalization is what makes that visible.

Investors use it to compare the performance of different assets, such as a stock held for two years against a property held for ten, or to judge whether a given return was actually good once the time it took to earn it is factored in rather than looking at the raw percentage alone.

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Comments (1)

  • Editorial team

    Be careful with periods shorter than a year. A 10% gain in two months, which is 0.1667 years, annualizes to roughly 77%, because the formula assumes the same growth repeats six times in a row. That is arithmetic, not a forecast. The figure is most meaningful for holds of a year or more. For deposits and withdrawals along the way you need a different measure. What holding period are you comparing?

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