You probably know what you’ll earn this year in wages. And, you know that inflation will run about 2% this year. You know the dollar amount that you made on stocks and savings this year. But, like most, you probably don’t know your annualized return–the percentage amount of portfolio increase expressed in terms of a one-year return. Now, ask a Wall Street portfolio manager the same question and she’ll know the annualized return of all her portfolios to a hundred of a percentage point–as do I. The professionals always think of returns in terms of annualized returns. An annualized return lets you meaningfully compare your progress and performance with other investment benchmarks (savings, T-bills, market indexes) and with inflation.

Here’s how to calculate an annualized return, shown in a Google spreadsheet that I use. Unfortunately, not all my investments did this well, but most are decent. Read until the end of these tips and I’ll explain how I picked this fund. For now, let us focus on annualized return.

FUND NAME OR SYMBOL PURCHASE DATE COST TO BUY VALUE TODAY GAIN GAIN IN PERCENT DAYS I HELD ANNUALZIED GAIN
OBCHX3/15/2007 $5300$5880.15$58010.95%7057.08%

An ordinary portfolio view should and will show you what you paid for a stock and when, how much gain you have, and the percent of gain–basic data we’ve all seen before. But, to learn your annualized return for an investment, you need one more piece of data, and one more calculation. The piece of data you need is the number of days you have held the investment. In the case above, on 5/25/07 (the day I write this) I had held OBCHX for 70 days. Google spreadsheets has a function that automatically calculates the number of days elapsed from my purchase date and updates the figure every day. I begin with the number of days I held the stock and make a fraction with 365 (total days a year) over 70 (days elapsed) and I multiply that figure by 10.95% (my gain in the 70 days) to arrive at my annualized gain.

365/70 x 10.95% = 57.08%

For any help with the Google spreadsheet functions or the formulas, post a message at https://gimmelaw.com/forums/ and I’ll respond there.

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