Thursday, August 16, 2012

How to calculate your compound annualized investment return

It can be difficult but to keep it easy, you can apply the following formula:


10^(LOG(PV/C)/(D/360))-1

where

PV: Value of your investment at the end
C: Capital invested
D: Period of investment (in days)

It can be a lot more complicated if you have added or withdrawn capital from your account. In this case, to have a back of the envelop idea of the figure; you can modify the capital invested to take into account the transactions which did occur during the period.

It is worth to do the calculation for different periods (last year, last 3 years, last 5 years …) using the financial statements sent by financial institutions and you will probably be surprised to find out that your figures differ from the returns advertised. This is because financial institutions don’t advertise the compound annualized investment return … Yet, it is really what counts!