Annualized Return: Overview, Formula, Example

By Kristi Waterworth – Updated Apr 25, 2025 at 9:30 PM | Fact-checked by Frank Bass

Key Points

Annualized return helps compare similar investments to see which performs better over time.
Calculate annualized return using a straightforward formula.
Consistent annual review of returns can influence decisions to adjust investment portfolios.

Being an investor means learning a whole new language -- and new ways to look at your investments. One of those informative terms, annualized return, can help you examine your investments to decide if they're still worth having, or if it's time to say goodbye.

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Theoretical annualized return of XYZ, Inc. per year over five years.
	Start Price	End-of-Year Price	Annualized Return
Year 1	$10	$25	150%
Year 2	$25	$30	20%
Year 3	$30	$55	83.3%
Year 4	$55	$72.50	31.8%
Year 5	$72.50	$75	3.5%

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From this analysis, you can see that while your stock has done well overall, it didn't do it very consistently. For some investors, this might be a red flag, and a stock they might want to let go, especially since the annualized returns have been decreasing since the first year.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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