Services > Annual Returns
An annual return is the percentage gain or loss on an investment over a one-year period. It measures the performance of an investment, taking into account changes in value and any income generated, such as dividends.
Key Components
- Initial Investment:The amount of money initially invested.
- Ending Value: The value of the investment at the end of the year.
- Income:Any income generated from the investment, such as dividends or interest
Calculation
The formula to calculate the annual return is:
Annual Return=(Initial InvestmentEnding Value−Initial Investment+Income)×100
Example
If you invested £1,000 in a stock at the beginning of the year, and by the end of the year, the stock’s value increased to £1,200, and you received £50 in dividends, the annual return would be:
Annual Return=(£1,000£1,200−£1,000+£50)×100=25%
Importance
- Performance Measurement:Helps investors assess the performance of their investments over a specific period.
- Comparison:Allows comparison of different investments to determine which ones are performing better.
- Decision Making:Informs investment decisions by providing insights into potential returns
