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Annual Return

An annual return is the percentage change in an investment's value over one year, usually including income such as dividends or interest, measured against the amount invested at the start.

What Is an Annual Return?

An annual return is the percentage change in the value of an investment over a one-year period. It shows how much an investment gained or lost during the year, expressed as a share of the amount invested at the start. Most annual returns include both price movement and income, such as dividend or interest payments, so the figure reflects the full result for the holder. When income is included, the figure is often called a total return. Some sources measure only the price change, which is known as a capital gain.

How It Is Calculated

A common way to calculate a one-year return is:

Annual Return = (Ending Value − Beginning Value + Income) ÷ Beginning Value × 100

Income here means cash received during the year, such as dividends or interest. Because some sources leave income out, the definition used in any given figure is worth checking.

For example, suppose a holding was worth 10,000 at the start of the year, paid 200 in dividends, and was worth 10,800 at year end. The annual return would be (10,800 − 10,000 + 200) ÷ 10,000 × 100, which equals 10 percent. This simple calculation ignores fees, taxes, and the effects of reinvesting income.

Why It Matters and Its Limits

Annual returns allow investors to compare results across different years and investments, or against a benchmark index. Because they cover only one year, they can vary widely from one year to the next. Volatility describes how much returns swing over time, and a single strong or weak year may say little about longer-term performance. For periods longer than one year, analysts often use compound annual growth rate, which converts multi-year results into one steady average rate.

Annual returns are also sensitive to the start and end dates chosen. Calendar-year returns and returns over a rolling twelve-month period can differ noticeably. A simple annual return also does not reflect inflation, so the figure may overstate what an investment's buying power actually grew by. Past annual returns do not guarantee future results.

Updated October 15, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Dividend

A dividend is a payment a company makes to its shareholders, usually in cash or additional shares, as a way of distributing part of its profits.

Total Return

Total return is the complete measure of an investment's performance over a period, combining price change with income such as dividends or interest and any reinvested payouts, usually expressed as a percentage.

Capital Gain

A capital gain is the profit earned when an asset, such as a stock, bond, or property, is sold for more than its purchase price, or cost basis.

Volatility

Volatility is a statistical measure of how much and how quickly an asset's price moves up or down over a given period, with higher volatility indicating larger price swings.

Compound Annual Growth Rate (CAGR)

The compound annual growth rate is the steady, year-over-year rate at which an investment or value would have to grow to move from its starting amount to its ending amount over a given period.

Dividend Yield

Dividend yield is the annual dividend paid on a stock expressed as a percentage of its current share price, showing how much cash income an investor receives relative to what the shares cost.