Lux Investing

How do I determine an annual percentage growth rate for an investment?

I invested $500 on April 2nd, and as of the 30th, it had grown to $538...I know that is a 7% (or so) increase so far, but how do I figure out what the annual growth rate is, based on those numbers, and what formula would I use to do so? Thanks! My assumption was that (taking this as one month passed for simplicity)..a 7% growth rate in one month would be equivalent to an 84% growth rate in one year..

Public Comments

1. Keep it simple wait untill this time next year.
2. after reading your question about 5 times...I've realized that you cannot calculate the annual %age growth rate. You're missing information that's necessary to calculate an annual growth rate.....like, more than one piece of info regarding your return.
3. (538-500)/500=.076 (7.6%) your return April 2 through April 30 is 28 days .076 * (365/28) = .991 (99.1%) in other words [(538-500)/500]*(365/28) = 99.1% This is the annualized return that you have earned over the last 28 days. It does not mean you will earn this in a year unless you have some guarentee to continue the same growth rate. If this was the case I would want in except I would not believe it so I would not touch it. I do not understand why others think you can not get an annualized return all you need is the return over a period and the length of the period, i think they are trying to say that the investment will not likly continue the same return but that is irrelevant to fiinding the annualized return over the past period. Daves answer will give you the return over a year if you assume you will earn the same every 28 days and so you compound the 7.6% 12.7 times over the year and would end the year at 159 but I think the question had more to do with what you did earn and not what it would be if you continued to earn the same return.
4. You can't calculate the Annual Growth rate based on the infos you're giving us. You might be able to assume, but that's not correct either. What type of an investment are you talking about here? Stocks? Options? Which industry? Commodities or BioTech?
5. IF your investment would continue to grow at 7.6% every 28 days (which is virtually impossible), here's how to figure out what that would be in a year: New amount divided by original amount raised to the power of (365 divided number of days so far), then subtract 1 and multiply by 100 to get percentage. In your example, that is: (538/500) ^ (365/28) = 2.5983 (2.5983 - 1) * 100 = 159.83% The reason it is not 84% is because for the next 28 days, you will have $538 growing at 7.6%, not just $500 like you had for the first 28 days. In other words, you're making profits on both your original investment plus your profits so far. That's called compounding and is a very powerful principle. That's why people that start to save for retirement when they're 20-something end up with MUCH more than people that start saving at 50-something even if they save the same amount.