Just see Annualize and be done with it.
Basically, the YRRM takes an annual view of investment returns. The magic phrase: New minus old over old.
So...if you invested in a stock at 10 bucks a share just after the ball dropped on New Year's Eve, and it closed the following year at $12.24, then your yearly return would have been 22.4%. Had you instead sold it when it kissed $15.00 on June 30 of that year, you'd have had an annualized 100% return on the stock, because it returned 50% at the midpoint of the year.
Why do investors worry about this term? It helps compare one set of returns with, say, that of the overall stock market. Or versus cash. Or bonds. Or some wild-haired hedge fund with huge fees. Placing everything on the 'yearly' grid gets everyone more or less on the same page, and that's important when your balls are dropping on New Year's Eve. Manhattan is usually freezing by then.
Related or Semi-related Video
Finance: What is an Annualized Return?36 Views
Finance, a la shmoop. What is an annualized return? Alright people, well
when you invest a dollar you hope or even expect to get more than a dollar [ATM machine]
back, at some point. And let's say you invested that dollar in Terminators
Closet -a leading dealer in cybernetic body enhancements. And it went from $1 a
share to a dollar ten six months later. Alright, nice return.
You made 10% in just six months but in most investing discussions ,investment [spreadsheet shown]
returns are discussed in the form of annual returns, not monthly or daily or
biannual numbers, so you need to convert your six-month return into an annualized [angelic glow]
one, and you can do the process here of computing that number that is if you made
10% in six months well then in a year presumably you could notion that you'd
have made 20%. It's not that you would have guaranteedly made 20% it's just [spreadsheet shown]
the math saying that well if you had compounded at that rate then you'd have
made 20%, so what if she made 10% in a month? Well the stock went from a buck a
share Jan 1 to a buck ten a share by Feb 1 .Well if you impute so that you can [calendar shown]
compute that month's gain of 10% would carry a compound rate of a hundred
twenty percent. Right ? You're multiplying 12 months times 10 there, that'd be
annualizing it meaning, that at that rate you are more than doubling your money on [spreadsheet shown]
an annualized return basis. And that's more than enough dough to keep
terminators closet popping out those Wi-Fi enabled contact lenses faster than [woman watches TV]
people can wear them.
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