After releasing the PWL 2012 Rate of Return Calculator late last year, my email was flooded with requests for an updated calculator for 2013, so here it is. The PWL 2013 Rate of Return Calculator can also be used for any non-leap-year – feel free to use it for 2011, 2010 and 2009 calendar years (the 2012 calculator can be used for leap-years).

How do I calculate an annualized return?

An annualized return is really just a sexier way to say “average return” – annualized returns are the type of returns frequently quoted in the media:

In order to calculate your annualized return over 3 or 5 year periods, you will need to first calculate your annual calendar year returns for all of the years in question (using our online calculators).  Once you have done this, you will need to “chain-link” the annual returns, using the equations below (Microsoft Excel may be useful for this exercise):

Once you have calculated your annualized return, bring the information to your advisor – they should be able to provide you with a custom benchmark portfolio return in which to compare to.  If they are reluctant (or unable) to provide you with this information, find a new advisor.