I use a modified version of the Excel calculation (XIRR = internal rate of return). This Excel function also handles fractional years well. IMHO this is the best way to calculate your annualized return.
How did you modify the XIRR calculation? Do you feel this it gives you a more accurate return than the original calculation?
Well, with "modified" I meant that I wrote my own version of it in Visual Basic. It is slower than the original one (because of VB, but also the original one uses Newton Iteration, which I didn't get to converge in all cases), but it is more flexible for my purposes.
The XIRR function requires a continuous range of cells, which is probably fine for 99% of use cases. If I remember correctly, it also requires that the values are in proper order by date. My function doesn't have the 2nd restriction and it bypasses the first restriction by having an extra parameter to say, if a cell should actually be used. So it kind of works like SUMIF does vs. SUM. It's been well over two years that I last worked on it and I a speaking from memory, so I hope I got all the details correct.
What I planned to use it for is to dump out my investment transactions from Quicken into an XLS and calculate my annualized gain. However it does require more work to combine the results from multiple brokerage accounts.
Bernhard