Rate of Return Calculator
Earning 10.52% a year, compounded, for 3 years gives the same 35.00% total return.
How the rate of return calculation works
Total return = (value now + income − amount invested) ÷ amount invested
$20,000 that is now worth $26,000 and paid $1,000 of income gained $7,000, a 35% total return.
Annualize with (1 + total return)^(1 ÷ years) − 1
35% over 3 years is 1.35^(1/3) − 1 = 10.52% a year, not 35 ÷ 3 = 11.67%, because returns compound.
Count income you took out
Dividends, interest or rent paid to you are part of the return even though they are no longer in the account.
Use the annualized figure to compare
Annualized returns let you compare a 3-year investment with a 1-year CD or your loan rate on equal terms.
Worked example. A business put $20,000 of spare cash into a fund that is now worth $26,000 and paid $1,000 in dividends over 3 years. The gain is $7,000, a total return of 35% and an annualized rate of return of 10.52%.
Rate of Return FAQ
What is the rate of return formula?
Rate of return = (value now + income received − amount invested) ÷ amount invested × 100. For $20,000 now worth $26,000 that paid $1,000 of income: ($26,000 + $1,000 − $20,000) ÷ $20,000 = 35%.
How do I calculate rate of return?
Subtract what you invested from what you got back (current value plus income), then divide by what you invested. $7,000 gain ÷ $20,000 invested = 35%. Then annualize it if you held the investment for more or less than a year.
What is an annualized rate of return?
The yearly rate that, compounded, produces the same total return. It is (1 + total return)^(1 ÷ years) − 1, also called the compound annual return.
How do I calculate annualized return?
Add 1 to the total return, raise it to the power of 1 ÷ years held, then subtract 1. A 35% total return over 3 years is 1.35^(1/3) − 1 = 10.52% a year. Dividing 35% by 3 gives 11.67%, which overstates it because it ignores compounding.
What if I held the investment for less than a year?
The same formula scales a short-period return up to a yearly rate. A 5% total return over 6 months (0.5 years) is 1.05^(1/0.5) − 1 = 10.25% a year. Treat annualized figures from very short holding periods with care, as they assume the same pace continues.
Does the rate of return include dividends and interest?
It should. Total return counts both the price change and the income paid to you. In the example, the price change alone is 30% ($26,000 vs $20,000), but with $1,000 of dividends the total return is 35%.
What is the difference between rate of return and ROI?
They are often used for the same thing: gain divided by cost. Rate of return is usually also annualized so periods of different length can be compared.
What is a good annual rate of return?
Compare it with what you could earn with similar risk. For spare business cash, a savings account or Treasury yield is the baseline; for a riskier investment you should expect more.
Does this account for money added or withdrawn during the period?
No, it assumes one amount invested at the start. If you added or took out money along the way, use the IRR calculator, which handles cash flows in each year.