The simplest version: take the year's percentage gain (including reinvested dividends) and that's your annual return. Examples, pitfalls, and how annual differs from annualized.
Annual Return = (End of Year Value − Start of Year Value + Distributions) / Start of Year Value × 100
Annual return measures the percentage gain during a single calendar year. It's the most common number you see quoted (e.g., 'the S&P 500 returned 26% in 2023'). Simple to calculate, but volatile year-to-year.
S&P 500 returned 25.7% in 2023 but the price-only return was 24.2%. Stocks like REITs returned 11% price but 15%+ total. Always include distributions.
Fix: Look at 'total return' numbers, not just price. Most financial sites report both. Use total return for accurate comparisons.
S&P returned +26% in 2023. S&P returned −18% in 2022. Picking the good year and ignoring the bad year is misleading.
Fix: Always look at multi-year returns (3, 5, 10 years) for context. Single-year returns are noisy.
For a diversified US stock portfolio, 7-10% per year is historically average. Anything above 12% is excellent; below 4% is poor. For bonds, 3-5% is normal. Cash equivalents (savings, CDs, T-bills): 1-5% in current rates.
No. Annual return is for ONE year. CAGR is the average annualized return over MULTIPLE years. You can have annual returns of +30%, −15%, +20% — averaging to 11.67% per year, but CAGR of 10.16% per year. CAGR is the more useful multi-year metric.
Since 1928, the S&P 500 has averaged about 10% per year (with dividends reinvested). Adjusted for inflation, that's about 7% real return. Recent decades: 1990s ~15%/yr, 2000s ~0%/yr (including two crashes), 2010s ~14%/yr.
See your exact investment return with our free calculator — handles dividends, taxes, and contributions.