1. What is Annual Return?

Annual return is the geometric average amount of money earned by an investment each year over a given time period. It shows the compounded rate of growth of your investment.

2. How Does the Calculator Work?

The calculator uses the annual return formula:

Where:

• Final Value — Current value of the investment ($)
• Initial Value — Original investment amount ($)
• Years — Length of the investment period (years)

Explanation: The formula calculates the compound annual growth rate (CAGR) that would grow the initial investment to the final value over the specified period.

3. Importance of Annual Return

Details: Annual return helps investors compare performance of different investments over time, accounting for compounding effects. It's essential for evaluating investment performance and making informed decisions.

4. Using the Calculator

Tips: Enter the initial investment amount, current value of the investment, and the number of years the money was invested. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annual return and average return?
A: Annual return accounts for compounding, while average return is a simple arithmetic mean that doesn't reflect the actual growth rate.

Q2: What is a good annual return?
A: Historically, the S&P 500 has returned about 7-10% annually. Returns above this are considered excellent, while below may indicate underperformance.

Q3: Can annual return be negative?
A: Yes, if your investment lost value over the period, the annual return will be negative.

Q4: Does this include dividends?
A: The calculator works with total value. For accurate returns, include reinvested dividends in the final value.

Q5: How does inflation affect annual return?
A: This shows nominal return. For real return (after inflation), subtract the inflation rate from the annual return.