1. What is Annual Return on Investment?

The Annual Rate of Return (ROR) measures the percentage gain or loss on an investment over a one-year period, accounting for compounding. It standardizes returns of different time periods for comparison.

2. How Does the Calculator Work?

The calculator uses the annualized return formula:

Where:

• End Value — Current or final investment value
• Start Value — Initial investment amount
• Years — Investment period in years

Explanation: The formula calculates the geometric average return that would be needed each year to grow the initial investment to the final value over the given period.

3. Importance of Annual ROR Calculation

Details: Annualized returns allow investors to compare performance of different investments regardless of their time horizons. It's essential for portfolio analysis and investment decision-making.

4. Using the Calculator

Tips: Enter the initial investment amount, current/final value, and investment period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is annual ROR different from total return?
A: Total return shows overall gain/loss, while annual ROR shows the consistent yearly return that would produce that total return.

Q2: What's a good annual return on investment?
A: Historically, 7-10% is considered good for stock market investments, but this varies by asset class and risk tolerance.

Q3: Does this account for additional contributions?
A: No, this formula assumes a single initial investment with no additional contributions or withdrawals.

Q4: Can the result be negative?
A: Yes, a negative result indicates an annualized loss on the investment.

Q5: How does compounding affect the result?
A: The formula automatically accounts for compounding by using the geometric mean rather than simple division.