Investment Annualized Return Calculation

What is the annualized return of a 5-year investment with the following annual returns; +14%;−12%;+6%;−10%;+30%?

Calculate the annualized return of the investment using the proper method for calculating investment returns.

The annualized return of the investment over the 5-year period is 4.0

The annualized return is calculated using the geometric mean or compound annual growth rate (CAGR). The method involves converting returns to decimals, multiplying them, taking the fifth root of the result, subtracting 1, and finally converting back to a percentage.

The 5-year investment with annual returns of +14%;−12%;+6%;−10%;+30% has an annualized return of 4.0. This calculation is done using the geometric mean or compound annual growth rate (CAGR) which is a suitable method for calculating investment returns over time.

In this scenario, the returns are converted to decimals as follows: +14% = 1.14, -12% = 0.88, +6% = 1.06, -10% = 0.90, and +30% = 1.30. These decimals are then multiplied together to get a total product of 1.221.

Next, the fifth root of the total product is taken to get 1.040. By subtracting 1 and multiplying by 100, we arrive at the annualized return of 4.0 for this specific investment.

The annualized return of 4.0 indicates the average annual return of the investment over the 5-year period, providing investors with valuable insights into the performance and growth of their investment.