Annualised Returns is a statistical technique used in finance to compare the returns from different investments over varying periods of time. It represents the average amount of money earned by an investment each year over a given time period.
It is calculated using a specific formula and is generally expressed as a percentage. By calculating the annualised returns, an investor can compare the return of an investment against other investments or a benchmark index. It gives a clearer picture of the returns because it averages out the effect of compounding, and provides a snapshot of an investment’s annual growth rate.
If an investment is held for a period longer or shorter than a year, annualised returns can be used to convert the return into a yearly return. This makes investments that are held for different periods of time directly comparable. It helps in understanding the return an asset generates in a typical year.
