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What is an annual return?

An annual return is the return that an investment provides over time. It's expressed as a time-weighted annual percentage. Sources of returns can include dividends, returns of capital and capital appreciation.

How is annual return measured?

The rate of annual return is measured against the initial amount of the investment and it represents a geometric mean rather than a simple arithmetic mean. An annual or annualized return is a measure of how much an investment has increased on average each year during a specific period.

Can annualized returns skew investors' perceptions of investment returns?

However, when it comes to calculating annualized investment returns, all things are not equal, and differences between calculation methods can produce striking dissimilarities over time. In this article, we'll show you how annualized returns can be calculated and how these calculations can skew investors' perceptions of their investment returns.

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