## Live: Treasury Secretary Steven Mnuchin testifies in House hearing on Trumpâ€™s budget plan

Watch Now | Dismiss

# How to Calculate the Annualized Holding Period Return

By

When investing, especially in stocks, your returns can fluctuate wildly from year to year. For this reason, knowing an asset's return for a single year isn't too helpful when deciding whether or not to invest. Calculating annualized returns for longer time periods can help you better assess how the investments you currently hold are performing, and can also help you choose future investments.

Calculating annualized returns
First, determine the investment's overall total return over the holding period you're examining. You can find this by subtracting the investment's current value from its original value, and then dividing by the original value.

Note: This formula assumes all dividends paid during the holding period were reinvested.

Next, divide the number one by the number of years of returns you're considering. For example, if you're looking at a 10-year holding period, dividing one by 10 gives 0.1. To annualize your returns, raise the overall investment return to this power, and then subtract one.

An example
Let's say that you invested \$10,000 in Microsoft 10 years ago, and that your shares (including reinvested dividends) are currently worth \$23,800. Using this information, you can calculate your total investment return to be:

So, your total return over a decade has been 138%. Since we're considering a 10-year period, I'll use 0.1 as my power to calculate the annualized return: