Calculate the average annual return (CAGR) of an investment based on its beginning and ending value.
An average return calculator works out the compound annual growth rate (CAGR) of an investment — the steady annual percentage growth rate that would take it from its beginning value to its ending value over a given number of years. This is the standard way to express an investment's "average annual return" when the actual growth was uneven from year to year.
The total return percentage simply compares the ending value to the beginning value. The CAGR goes a step further, working out what constant annual growth rate — compounded each year — would turn the beginning value into the ending value over the number of years specified. This "smooths out" a real investment's ups and downs into a single representative annual rate.
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 £10,000 to £18,000 over 5 years has a total return of 80%. The average annual return (CAGR) is roughly 12.5% per year — meaning a constant 12.5% annual growth rate, compounded over 5 years, would produce the same overall result. (Note: this example is for illustration purposes only and is not a guarantee of any actual investment outcome.)
CAGR is widely used when reviewing the performance of pensions, ISAs, investment funds, and individual shares, because real investments rarely grow by the same amount every year — a fund might gain 25% one year and lose 10% the next, but CAGR expresses the net effect as a single, comparable annual figure. This makes it useful for comparing the performance of different investments over different time periods, or for comparing your own portfolio's growth against a benchmark such as a market index. Bear in mind that CAGR is a backward-looking measure based on a single beginning and ending value — it doesn't capture volatility along the way (an investment that fell sharply mid-period and recovered would show the same CAGR as one that grew steadily), and past CAGR is not a reliable guide to future returns.
CAGR stands for Compound Annual Growth Rate. It represents the constant annual rate of return that would be needed to grow an investment from its beginning value to its ending value over a specified number of years, assuming growth compounds each year.
Total return is the overall percentage change over the entire period, while CAGR is that same overall change expressed as an annual rate. For periods longer than one year, CAGR will always be lower than the total return percentage because it represents a per-year rate rather than a cumulative one.
No. CAGR only considers the beginning and ending values and the number of years between them — it doesn't reflect the path the investment took to get there. Two investments with very different volatility could show the same CAGR if their beginning and ending values and time periods match.
This calculator is designed for a single beginning value and a single ending value with no additional contributions or withdrawals in between. If you made regular contributions, the resulting CAGR won't accurately reflect your personal return — the ROI Calculator or Investment Calculator may be more appropriate.
No. CAGR describes what happened over a specific historical period and is not a reliable indicator of future performance. Market conditions, economic factors, and the specific investment's circumstances can all change, meaning future returns could be higher, lower, or negative regardless of past CAGR.
This depends entirely on the type of investment, the time period, and the level of risk taken. There's no universal benchmark for a "good" CAGR — it's most useful when compared against a relevant benchmark (such as a market index) or against your own financial goals and risk tolerance.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial or investment advice. CAGR is a historical measure based on the figures you enter and does not predict or guarantee future investment performance. The value of investments can go down as well as up, and past performance is not a reliable indicator of future results. Always consult a qualified financial adviser before making investment decisions.