How to Calculate Rolling Returns

When comparing investments in your portfolio, you may be concerned primarily with the returns a particular security generates over time. Rolling returns measure average annualized returns over a specific time period and they can be helpful for gauging an investment’s historical performance. Knowing how to calculate rolling returns and interpret those calculations is important when using them to choose investments.

A financial advisor can familiarize you with several other metrics to gauge your investments’ progress.

What Are Rolling Returns?

Rolling returns represent the average annualized return of an investment for a given time frame. Specifically, rolling return calculations measure how a stock, mutual fund or other security performs each day, week or month from the time frame’s beginning to ending dates.

Essentially, rolling returns breaks a security’s performance track record into blocks. Investors can determine what return data to focus on for a particular block of time. For example, you may use rolling returns to measure a stock’s monthly performance over a five-year period or its daily returns for a three-year period.

Rolling returns calculations can measure an investment’s return from dividends and price appreciation. Typically, it’s more common to use longer periods of time such as three, five or even 10 years, to measure rolling returns versus to get a sense of how an investment performs. That’s different from annual return, which simply measures the return a security generates within a given 12-month period. It’s also different from yield.

How to Calculate Rolling Returns

If you’re interested in using rolling returns to evaluate different investments, there’s a step-by-step process you can follow to calculate them. The first step is choosing a start date and end date for which to measure returns. For example, say you want to measure rolling returns for a particular stock over a 10-year period. If you’re specifically interested in how well the stock performs in recessionary environments, you might set the tracking to extend from Jan. 1, 2012, to Jan. 1, 2022, which would include performance history for the Great Recession.

The next step is determining the return percentage generated for each year of the period you’re tracking. To do this, you’ll need to know the starting price and ending price for the stock or other security for the applicable years. Take the ending price and subtract the beginning price, then divide that amount by the beginning price to find that year’s return.

Next, you’ll use averaging to calculate rolling returns. Add up the return percentages you calculated for each year of the time period you’re tracking. Then divide the total by the number of years to get the average annualized return.

To find rolling returns, you’d simply adjust the time frame being measured. So, if you started with Jan. 1, 2014, for example, you could adjust your time frame to track the period from Feb. 1, 2014 to Feb. 1, 2024. Or you could look at rolling returns on a yearly basis, which means removing returns for 2014 and recalculating using returns for 2024.

This makes it fairly easy to customize rolling returns calculations when evaluating investments. You could use rolling returns calculations to mimic your typical holding period for a stock or mutual fund. For example, if you normally hold individual investments for five years then you might be interested in isolating rolling returns for that same time frame.

Rolling Returns vs. Trailing Returns

When evaluating investment performance, both rolling returns and trailing returns help paint a picture of how an asset or fund has performed, but they measure time differently. Rolling returns calculate average performance over multiple, overlapping time periods.

For example, a three-year rolling return measures every three-year period within a chosen timeframe, giving investors insight into consistency and volatility. This approach smooths out market fluctuations and reveals how an investment performs across different market cycles rather than just at one point in time.

Trailing returns, on the other hand, represent the total return of an investment from a specific past date up to the present, such as year-to-date, one-year or five-year returns. They’re easier to calculate and interpret but provide a single snapshot that can be influenced by short-term market trends or timing. For instance, a fund’s five-year trailing return may look impressive if it includes a strong recent year, even if earlier periods were weaker.

The key distinction lies in perspective: rolling returns show consistency, while trailing returns show cumulative performance. Investors who want to understand how an investment performs over varying conditions often prefer rolling returns for a more balanced and dynamic view. However, both metrics are valuable when used together, trailing returns offer simplicity, while rolling returns offer deeper insight into an investment’s resilience and reliability over time.

What Rolling Returns Tell Investors

Rolling returns can be useful for comparing investments because they can offer a comprehensive view of performance and returns. Specifically, examining rolling returns rather than focusing solely on annual returns allows you to pinpoint the periods when an investment had its best and worst performance.

For example, you could use a five-year rolling return to determine the best five years or the worst five years a particular stock or fund offered to investors. This can help with deciding whether an investment is right for your portfolio, based on your goals, risk tolerance and time horizon for investing.

If you lean toward long-term buy-and-hold strategies versus shorter-term day-trading, for instance, then rolling returns can give you a better idea of how well an investment may pay off while you own it. Looking only at average annual returns may skew your perception of an investment’s performance history and what it’s likely to do in the future.

You may use rolling returns as part of an index investing strategy. Index investing focuses on matching the performance of a stock market benchmark, such as the S&P 500 or the Nasdaq Composite. It’s possible to calculate rolling returns for a stock index in its entirety, which can make it easier to see where the high and low points are for performance.

If you prefer actively managed funds in lieu of index funds, calculating rolling returns can also be helpful. In addition to assessing the fund’s performance over a specified time frame, rolling returns can also offer insight into the fund manager’s skill and expertise. If, for example, an actively managed fund outperforms expectations during an extended period of market volatility that can be a mark in favor of the fund manager’s strategy.

Bottom Line

Both rolling and trailing returns are essential tools for evaluating investment performance, but they serve different purposes. Trailing returns offer a straightforward snapshot of how an investment has performed over a fixed period, while rolling returns provide a broader view of consistency and risk across multiple timeframes. Using both together gives investors a clearer understanding of performance trends and helps identify funds that can weather changing market conditions.

Tips for Investing

An investment calculator can give you a quick estimate of how your investments will be doing in the years to come. Just put in the starting balance, yearly contribution, estimated rate of growth and time horizon.
Consider talking to your financial advisor about rolling returns and how to calculate them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.