annualize

verb an·nu·al·ize \ ˈan-yə(-wə)-ˌlīz , -yü-ə- \
Updated on: 13 Oct 2017

Definition of annualize

annualized; annualizing
transitive verb
:to calculate or adjust to reflect a rate based on a full year
  • quarterly returns yielding at an annualized rate of seven percent

First Known Use of annualize

1906


Financial Definition of ANNUALIZE

annualize

What It Is

Annualize means to express a rate in terms of its annual equivalent.

How It Works

The concept is best illustrated with an example:

Assume a portfolio generates a 1% return in one month. The monthly rate can be annualized by multiplying 1% by 12 (because there are 12 months in one year) to produce a 12% annualized return. Note that this number is just an estimate of what the portfolio's return would be if its performance was exactly the same for 12 months. It is not a measure of the portfolio's actual return.

To calculate an annualized return for an investment that compounds, use the following formula instead: ((1 + R) N – 1), where R is the periodic rate and N is the number of periods in one year.

Why It Matters

Annualizing returns makes it easier to compare them across time periods or among different companies, portfolios, stocks, etc. If you are trying to choose between two gold funds, one with an annualized return of 10% and one with an annualized return of 11%, all things being equal, you'd likely choose the fund with the higher annualized yield.


Learn More about annualize


Seen and Heard

What made you want to look up annualize? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

to praise usually to excess

Get Word of the Day daily email!

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!