How to Annualize Daily Returns

by Alia Nikolakopulos, studioD

The daily returns that you receive on investments vary on a constant basis. While daily return information is important data, some investors also want to know the annual return rate of the investment. With a few simple calculations, you can annualize daily return data to determine the investment's average return for the year. The annualization process requires recent return data on the investments you own or are interested in purchasing, and some information about how many days per year daily returns are posted for the security.

Determine the cumulative value of your investment at the beginning of the month you use for the analysis. If you already own the investment, the value of your account is shown on your most recent broker statement. If you are researching an investment to purchase, find daily or month-to-date return information on the corporate website for the company offering the investment.

Determine the value of the investment at the end of the month. Use the same resource you use in Step 1 to locate this information.

Subtract the end of the month value from the beginning value. The result is the total return for the month.

Divide your monthly average returns by the number of days in the month you with to analyze. The result is your average daily rate of return.

Divide your average daily rate by 100 to convert the figure to a decimal.

Add one to your decimal result.

Determine the number of days per year you receive returns. Some investments use a business day system. In general, 250 days per year exist in the business day system. This accounts for the number of regular business days within a 12-month period, minus 10 federal holidays. Returns may also post every day of the year. For this system, 365 days exist in the year. Contact your investment broker to determine the daily return system used.

Raise your result from Step 6 to a power that represents the number of days per year that returns are posted for your investment. To perform this step, you’ll need a scientific calculator or an online scientific calculator. Select the calculator key that represents the letter “x” raised to the power “y.” Enter the number of days in your annual return system from Step 7 as your “y” value.

Subtract one from the result in Step 8 and multiply the new result by 100. The result is your annualized daily rate of return.

About the Author

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.

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