Annualized Return

Last updated: May 20, 2026

Apples-to-apples annualization. Use geometric, never arithmetic.

Quick Answer

What is Annualized Return?

Annualized return expresses a multi-period return as a per-year rate, allowing comparison across investments held for different lengths of time. Foliolytic uses geometric (CAGR-style) annualization — the only mathematically correct method for multi-period returns. Reporting a 30% return without annualizing tells you nothing — was it 6 months or 6 years?

R_annual = (1 + R_total)^(365/days_held) − 1

Formula

R_annual = (1 + R_total)^365/d − 1

R_total = cumulative total return over the holding period · d = number of calendar days the investment was held

Same machinery as CAGR. The geometric compounding raises (1 + total return) to one over the fraction of a year you held the position.

Intuition — what is this number telling you?

The reason this matters: arithmetic annualization (multiplying or dividing by the number of years) systematically inflates returns. A 50% return over 3 years is not 16.7% annualized — it is 14.5% annualized. Geometric annualization gets that math right.

Worked example

Step-by-step

A portfolio earned +45% over 730 days (2 years).

R_annual = 1.45^365/730 − 1 = 1.45^0.5 − 1 = 20.4%

Note this is lower than 22.5% (arithmetic), because compound math respects the geometric mean.

What's a good Annualized Return value?

"Good" annualized return depends entirely on the asset class. See CAGR for the long-run historical figures by asset.

Frequently asked questions about Annualized Return

What is the difference between annualized return and CAGR?

For a single buy-and-sell investment, they are identical. CAGR is the annualized return when there are exactly two cash flows. Annualized return is the more general term.

Should I use arithmetic or geometric annualization?

Always geometric. Arithmetic annualization mathematically overstates compound growth.

Does annualizing a 1-month return give me a reasonable estimate?

No. Short-period annualization is statistically meaningless and frequently misleading — especially after a big up or down month. Annualize only when you have at least one full year of data.

How does Foliolytic annualize?

Always geometric, using actual calendar days held (not trading days). For very short holding periods, Foliolytic shows the cumulative return and labels annualization "not meaningful."

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