Question

What is 'annualised return' and how does it differ from 'absolute return'?

Accepted Answer

Annualised return expresses total return as a per-year equivalent rate; absolute return is the total return over the actual holding period without annualising — Absolute return measures total gain over the actual period (e.g., 50% over 4 years). Annualised return (CAGR) expresses this as an equivalent per-year rate (50% over 4 years ≈ 10.67% CAGR). Annualised returns allow meaningful comparison between investments held for different periods.