what is annual return

Annual return is the return that an investment provides over a period of time, expressed as a time-weighted annual percentage. It is a measure of how much an investment has increased on average each year, during a specific time period. The annual return can be more useful than a simple return when you want to see how an investment has performed over time, or to compare two investments. The annual return is calculated as a compound average rate of return for a stock, fund, or asset per year over a period of time. The annualized return is calculated as a geometric average to show what the annual return compounded would look like. The annualized return incorporates compounding; therefore, it is also known as the Compound Annual Growth Rate (CAGR) . If the rate of return is calculated on a monthly basis, multiplying it by 12 expresses an annual rate of return. The annualized total return is the geometric average amount of money earned by an investment each year over a given time period.