### How Do You Calculate A Cumulative Return?

#### Step 2: Geometrically Link the “Periodic Returns” to Calculate the “Cumulative Return”

##### If we apply the product formula to our series of 5 returns we get 30%.

Note: the Excel document is locked but you can save a copy and then edit as you like.

## So How Do You Calculate An Annualized Return?

#### Geoff

An outstanding, lucid explanation that clarifies the different methods of calculating the returns on an investment or portfolio.
A must read for any investor who needs to understand the monthly reports from his portfolio manager

#### Derek`

Hi Geoff,

How can I calculate for example 3 month return using a set of monthly returns say I need to calculate for 3 months and 6 months ?

#### Krista

Hi,

Hi Derek,
You would calculate the 3 month cumulative return as (1 + monthly return1) * (1 + monthly return2) * (1 + monthly return3) – 1. Please check out my post below on geometric linking for a more detailed explanation or use the contact form to email me a specific question!

#### Vijai Ananth

Dear Krista,

I must say that this is the best website to educate people on investments. It is so helpful and explains clearly the fundamentals.

I believe Annualized Return ( Annual Average Return ) is not the real world realized return. CAGR is the real world realized return for no flow, whereas IRR is the real world return for flow.

Kindly correct me if I’m wrong.

#### krista

Yes, you are correct. When there are flows, the IRR is the actual realized return, not the TWR (time-weighted return). When there are no flows, the IRR or TWR will give the same results and both are the actual return.

Insert math as
$${}$$