Calculate the average annual return (CAGR) of an investment based on its beginning and ending value.
This calculator computes the average annual return — specifically the Compound Annual Growth Rate (CAGR) — of an investment, based on its beginning value, ending value, and the number of years between them, along with a chart showing the smooth growth path that would produce the same result.
Total return is simply the percentage change from beginning to ending value. CAGR (Compound Annual Growth Rate) is the constant annual growth rate that, if applied every year for the number of years entered, would turn the beginning value into the ending value — it's a geometric average, not a simple arithmetic average of yearly returns.
Formula: Total Return = [(Ending Value − Beginning Value) ÷ Beginning Value] × 100. CAGR = [(Ending Value ÷ Beginning Value)(1 ÷ Years) − 1] × 100.
Example: An investment that grew from CA$10,000 to CA$18,000 over 5 years has a total return of 80%, but an average annual return (CAGR) of about 12.47% — meaning a constant 12.47% annual growth rate, compounding each year, would turn CA$10,000 into CA$18,000 over 5 years. (Note: this example is for illustration purposes only.)
CAGR is widely used to summarize the performance of investments such as mutual funds, ETFs, RRSPs, TFSAs, and individual stocks over multi-year periods, because it accounts for compounding and allows fair comparison between investments held for different lengths of time. It's important to understand that CAGR is a geometric average, which is different from (and always less than or equal to) the simple arithmetic average of yearly returns when returns vary from year to year — this difference is sometimes called "volatility drag." For example, an investment that gains 50% in year one and loses 50% in year two has an arithmetic average return of 0% but actually loses 25% of its value overall (a CAGR of roughly -13.4% per year) — CAGR captures this real-world outcome, while a simple average would misleadingly suggest no change. When reviewing your RRSP or TFSA statements, the "rate of return" reported by your financial institution is often closer to a CAGR-style figure (sometimes called a "money-weighted" or "time-weighted" return, which have their own distinctions) — this calculator gives you a simple way to compute an equivalent figure yourself from just the beginning and ending values.
Dividing total return by years gives a simple average that ignores compounding. CAGR accounts for the fact that returns compound on each other - it's the constant annual rate that, when compounded over the period, produces the actual ending value from the actual beginning value. For most multi-year comparisons, CAGR is the more meaningful figure.
Volatility drag refers to the fact that for a series of varying returns, the geometric average (CAGR) is always less than or equal to the simple arithmetic average, with the gap widening as volatility increases. For example, alternating +50% and -50% years average to 0% arithmetically but result in an actual loss over time - CAGR reflects this real outcome, which is why it's the more accurate measure of actual investment growth.
Yes - if your ending value is less than your beginning value, both the total return and CAGR will be negative, reflecting the loss. The formula works the same way for losses as for gains.
No. This calculator assumes the beginning and ending values represent the same investment with no additional money added or removed in between. If you made contributions or withdrawals during the period, the resulting CAGR won't purely reflect investment performance - it would also reflect the timing and size of those cash flows. For accounts with regular contributions, our Investment Calculator or Compound Interest Calculator may be more appropriate for projections.
If your account had no contributions or withdrawals over the period, enter its value at the start and end of the period and the number of years - the resulting CAGR is a reasonable estimate of your investment's performance. If you made regular contributions, the result will be affected by those cash flows too, so compare it cautiously against benchmarks that assume similar contribution patterns, or check your statement for a reported rate of return.
This depends entirely on the asset mix, time period, and market conditions - there's no single "good" number that applies universally. Broad equity markets have historically produced average annual returns in the range of roughly 6-10% over long periods, before fees and inflation, but any specific period (including the one you're measuring) can be significantly higher or lower. Compare your CAGR to a relevant benchmark over the same period for context, and remember past performance doesn't guarantee future results.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. This calculator computes CAGR based solely on the beginning value, ending value, and number of years entered, and does not account for contributions, withdrawals, fees, or taxes. Past performance, including any CAGR calculated here, does not guarantee future results. Always consult a qualified financial adviser for advice specific to your investments.