1. What is 3 Year Annualized Return?

The 3 Year Annualized Return is a measure of the average yearly performance of an investment over a three-year period. It accounts for compounding effects and provides a standardized way to compare investments of different durations.

2. How Does the Calculator Work?

The calculator uses the following equation:

Where:

• End Value — Current value of the investment (USD)
• Beginning Value — Initial investment amount (USD)
• 3 — Number of years in the period

Explanation: The formula calculates the geometric average return over the three-year period, accounting for compounding effects.

3. Importance of Annualized Returns

Details: Annualized returns allow investors to compare investments of different durations on an equal basis. They are particularly useful for evaluating long-term investment performance and making informed decisions.

4. Using the Calculator

Tips: Enter the beginning and ending values in USD. Both values must be positive numbers. The calculator will provide results in both decimal and percentage formats.

5. Frequently Asked Questions (FAQ)

Q1: Why use annualized returns instead of simple returns?
A: Annualized returns account for compounding effects over time, providing a more accurate measure of performance for multi-year periods.

Q2: What's the difference between annualized and annual returns?
A: Annual returns show performance each year, while annualized returns show the average yearly performance over the entire period.

Q3: Can I use this for periods other than 3 years?
A: This specific calculator is designed for 3-year periods. For other time frames, you would adjust the exponent in the formula.

Q4: How should I interpret negative annualized returns?
A: Negative returns indicate the investment lost value on average each year over the period.

Q5: Does this account for additional contributions or withdrawals?
A: No, this calculation assumes a single initial investment with no additional contributions or withdrawals.