How to Calculate Investment Return

Formula

total return = (final value − initial value) / initial value × 100

annualized return = ((final value / initial value)^(1/t) − 1) × 100

• initial value: the value at the start; the purchase amount plus costs
• final value: the sale amount or the current value, in the same currency
• t: the holding period in years: t = years + months/12 + days/365

The annualized return is the compound annual growth rate: if the initial value grew by this rate every year, it would reach the final value after t years.

Step-by-step example

An investment of 100,000 TRY grew to 150,000 TRY in 3 years:

1. Write the period in years: t = 3.
2. Find the profit: 150,000 − 100,000 = 50,000 TRY.
3. Find the total return: 50,000 / 100,000 × 100 = 50%.
4. Find the annualized return: (150,000 / 100,000)^(1/3) − 1 = 1.5^(1/3) − 1 ≈ 14.47%.

The annualized return is less than a third of the total return, because each year’s gain builds on the grown value of the year before. The values in the example are an illustration, not a market return.

Same gain, different periods

An investment of 100,000 TRY that grew to 150,000 TRY:

The total return does not show the period. Compare investments held for different periods by their annualized return.

Common mistakes

• Dividing the total return by the years. That ignores compounding and overstates the annualized return.
• Annualizing a short period. An investment that grew from 100,000 TRY to 110,000 TRY in 6 months has a 10% total return and a 21% annualized return. That rate was not earned; for periods under a year, look at the total return.
• Forgetting costs. Add purchase fees to the initial value; deduct sale costs and tax from the final value.
• Forgetting inflation. The formula gives the nominal return. To see how much your purchasing power grew, calculate the real return.
• Ignoring interim cash flows. With dividends, coupons, extra purchases or partial sales, this formula is not enough; you need the internal rate of return (IRR).