Written By
Paul Tracy
Updated November 4, 2020

What Does Annualize Mean?

Annualize means to express a rate in terms of its annual equivalent.

How Does Annualization Work?

The concept is best illustrated with an example:

Assume a portfolio generates a 1% return in one month. The monthly rate can be annualized by multiplying 1% by 12 (because there are 12 months in one year) to produce a 12% annualized return. note that this number is just an estimate of what the portfolio's return would be if its performance was exactly the same for 12 months. It is not a measure of the portfolio's actual return.  

To calculate an annualized return for an investment that compounds, use the following formula instead: ((1 + R) N – 1), where R is the periodic rate and N is the number of periods in one year.  

Why Does Annualization Matter?

Annualizing returns makes it easier to compare them across time periods or among different companies, portfolios, stocks, etc. If you are trying to choose between two gold funds, one with an annualized return of 10% and one with an annualized return of 11%, all things being equal, you'd likely choose the fund with the higher annualized yield

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Annualize.
Be the first to ask a question

If you have a question about Annualize, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Annualize, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Annualize

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms