What Is Rate of Return?
Rate of return measures the gain or loss on an investment over a period, expressed as a percentage of the initial investment. It includes both capital appreciation (price increase) and income (dividends, interest). The annualized return (CAGR) normalizes returns across different time periods for fair comparison.
Total Return vs Annualized Return
Total return is the overall gain: (Final Value + Dividends - Initial) / Initial. Annualized return (CAGR) shows the equivalent yearly growth rate. A 50% total return over 5 years equals about 8.45% annualized. Always compare investments using annualized returns.