The annualized rate of return is the average return an investment earned each year over a period of several years, taking compounding into account. It answers the question: what steady yearly rate would have turned the starting value into the ending value? It is the same calculation as the compound annual growth rate (CAGR), which is explained in full, with the formula and a worked example, on that page.
Funds report it over standard periods such as one, five and ten years, usually on a total return basis that includes reinvested income. It differs from a simple average of yearly returns, which ignores compounding; see also annualized return for converting returns over periods shorter or longer than a year.
Last updated 05 Nov 2026