Meaning & use
compounded annual return
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Meaning
nouncountablefinancebusinesstechnical
The average yearly growth rate of an investment over a period, assuming profits are reinvested each year.
Grammar: Countable; used with a number, often as 'a compounded annual return of 8%'.
Patterns
- a compounded annual return of X%
- earn a compounded annual return
- calculate the compounded annual return
The fund delivered a compounded annual return of 7% over the past ten years.
Investors use the compounded annual return to compare funds with different time frames.
A compounded annual return of 5% doubles your money in about fourteen years.
Common combinations
- compounded annual return of X%
- The savings plan offers a compounded annual return of 4%.
- average compounded annual return
- The average compounded annual return for the index was 6%.
- calculate the compounded annual return
- Analysts calculate the compounded annual return to compare long-term performance.
- achieve a compounded annual return
- Few managers achieve a compounded annual return above 10% for decades.
Synonyms and how they differ
- CAGR
- The common abbreviation for compounded annual growth rate; it is used in the same financial context and is often preferred in writing.
- annualized return
- Similar but broader: it can refer to any return converted to a yearly figure, not necessarily with compounding.
Word family
- compound verb
- To add interest to the original amount so that it also earns interest.
- compounding noun
- The process of earning interest on interest.
Commonly confused: compounded annual return or annual return? compounded annual return or compound return?
compounded annual return vs annual return
An annual return is the return for one specific year; a compounded annual return is a smoothed average over several years.
compounded annual return vs compound return
A compound return is the total growth over the whole period; the compounded annual return expresses that growth as an average per year.
Practice
An investment grows from $1,000 to $1,610 over five years. Which term describes the average yearly growth rate?
Choose one answer.
The compounded annual return gives the average yearly rate that would produce the total growth if profits were reinvested each year. 'Annual return' is only one year's figure, and 'compound interest' is the mechanism, not the summary rate.
Make it your own
Write a sentence using “compounded annual return”, then check it and compare it with the examples above.