1. What is Horizon Yield?

Horizon Yield is a measure of the annualized return on an investment over a specific time period. It calculates the compound annual growth rate (CAGR) between an initial investment value and its ending value after a certain number of years.

2. How Does the Calculator Work?

The calculator uses the Horizon Yield formula:

Where:

• Ending Value — Final value of the investment ($)
• Beginning Value — Initial investment amount ($)
• n — Number of years the investment was held

Explanation: The formula calculates the geometric average annual return that would grow the beginning value to the ending value over the specified number of years.

3. Importance of Horizon Yield Calculation

Details: Horizon Yield provides a standardized way to compare investment performance across different time periods and investment vehicles. It helps investors evaluate the effectiveness of their investment strategies and make informed decisions about portfolio management.

4. Using the Calculator

Tips: Enter the beginning value and ending value in dollars, and the number of years the investment was held. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between Horizon Yield and annual return?
A: Horizon Yield provides a smoothed annual return figure that accounts for compounding over multiple years, while annual return shows performance for individual years.

Q2: Can Horizon Yield be negative?
A: Yes, if the ending value is less than the beginning value, the Horizon Yield will be negative, indicating a loss on the investment.

Q3: How does Horizon Yield handle irregular cash flows?
A: The basic Horizon Yield calculation assumes no intermediate cash flows. For investments with regular contributions or withdrawals, more complex calculations like internal rate of return (IRR) may be more appropriate.

Q4: What are typical Horizon Yield values for different asset classes?
A: Historical averages vary: stocks typically 7-10%, bonds 3-5%, real estate 4-8%, but actual returns depend on market conditions and time period.

Q5: How accurate is Horizon Yield for comparing different investments?
A: Horizon Yield is excellent for comparing investments with similar risk profiles over the same time period, but it doesn't account for risk or volatility differences between investments.