Annualised Rate-of-Return

The cumulative returns divided by the number of years, annualised as a percent gives the Annualised Rate of Return. This allows investors to be more objective regarding their future return expectations.

An Annualised Rate of Return can be calculated for any investment, for example, a Stock or a Mutual Fund. The calculation gives an average percentage return an investor would have received each year for that investment. Now, standards in the Investment Industry prevents short term performance being annualised, for example, quarterly returns cannot be annualised. The one-year annual performance over a year of a Mutual Fund or Stock, can vary widely depending on the securities markets, the economy and the specific investment strategy. The idea behind annualising returns is to allow investors to be more objective in comparing the differing returns of investments over multiple periods of time.