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 an investment.

2. How Does the Calculator Work?

The calculator uses the annual return formula:

Where:

• Final Value — Ending value of the investment
• Initial Value — Starting value of the investment
• Years — Time period of the investment

Explanation: The formula calculates the geometric mean return, which accounts for compounding effects over time.

3. Importance of Annual Return

Details: Annual return allows comparison between investments of different time periods and helps investors understand the average yearly growth of their investments.

4. Using the Calculator

Tips: Enter the initial and final investment values in dollars, and the investment period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is annual return different from total return?
A: Total return shows the overall percentage change, while annual return shows the average yearly compounded return.

Q2: What's a good annual return?
A: Historically, stock market averages 7-10% annual return, but this varies by asset class and time period.

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

Q4: How does this differ from CAGR?
A: Annual return and CAGR (Compound Annual Growth Rate) are essentially the same calculation.

Q5: Why use geometric mean instead of arithmetic mean?
A: Geometric mean accounts for compounding and volatility, giving a more accurate picture of investment performance.