Calculate Annualized Return
As mentioned at the beginning, the return as a measure should make your investment(s) comparable. It is therefore advisable to normalize the return to the length of a calendar year. The broker speaks of annualized returns or Yield per annum, short: Yield pa
Back to our example above: If you have held your security, such as a fund or a share, for longer than a calendar year and, for example, only sold it after 570 days, the annual return will be lower. The basis is now the formula for calculating the annualized return:
Annual return = (1 + total return) times (365 / days held) – 1
If we insert the return of 25 percent (into the formula as 0.25) from the above example, we get
(1 + 0.25) to the power of (365 / 570) – 1
a result of 0.1536. This corresponds to a return of 15.36 percent per year. You have already normalized the return for the year and made it comparable as a standardized measure of the success of your investment.
Important: If your school days are a little further back, the operator ranking order should be recalled at this point: First you carry out the calculation within the brackets, then the exponent, i.e. the exponent, is used. Subtraction then follows in the third calculation step.
