Annualised return is the return an investment has earned per year, expressed as a compound annual rate — it restates a total gain or loss made over several years as one yearly percentage so that holdings of different lengths can be compared.
Key takeaways
- Annualised return compounds rather than averages: a total return is spread across the years using the formula (1 + total return) raised to the power of 1 divided by the number of years, minus 1.
- A simple average of yearly returns overstates the result whenever returns vary, because it ignores compounding.
- MoneySense defines return as the gain or loss made from an investment, and net returns as the amount earned less any losses and fees.
- Sales charges, brokerage charges and manager fees reduce the return that reaches the investor, so a gross annualised figure differs from a net one.
- Subtracting inflation from an annualised return gives an approximate real annualised return.
See how this applies to your own figures.
Singapore ROI Calculator →How annualised return is calculated
The starting point is the total return over the whole holding period — the ending value divided by the starting value, minus 1. That total is then converted into a yearly rate by taking the holding period root: (1 + total return) raised to the power of 1 divided by the number of years, minus 1. The result is the constant yearly rate that would have produced the same ending value if it had compounded every year.
Why it is not a simple average
Averaging yearly percentages treats each year as independent, but investment values compound on the previous year’s balance. A year of −50% followed by a year of +50% averages to 0%, yet the holding is down 25% overall, which annualises to about −13.4% a year. The compound method reflects what actually happened to the money.
Gross, net and real
- Gross annualised return — before charges and taxes
- Net annualised return — after sales charges, brokerage charges and manager fees, which MoneySense notes reduce the returns received
- Real annualised return — the net figure adjusted for inflation, so it is stated in constant purchasing power
The three can differ widely over long periods, so a gross figure and a net figure are not describing the same thing.
How annualised return is worked out
| Item | Figure |
|---|---|
| Formula | (1 + total return) ^ (1 / years) − 1 |
| Expressed as | % per annum |
| Basis | compounded, not averaged |
| Net figure | after sales, brokerage and manager fees |
| Real figure | net return adjusted for inflation |
Figures as at 2026. Source: MoneySense.
Worked example
An investment of SGD 10,000 that is worth SGD 12,500 after five years has a total return of 25%. Annualised, that is 1.25 raised to the power of one-fifth, minus 1 — about 4.6% per annum. Charges and inflation would both reduce the figure an investor actually keeps.
Related terms
All Singapore glossary terms →Related calculator
Work out the total and annualised return on an investment from its starting value, ending value and holding period.
This page is provided for educational and informational purposes only. It does not constitute financial advice. All figures and worked examples are estimates for illustrative purposes, are subject to change, and do not reflect any individual’s circumstances. Always refer to MoneySense and seek independent professional advice before making any financial decisions.