Calculate the average annual return (CAGR) of an investment based on its beginning and ending value.
An average return calculator finds the compound annual growth rate (CAGR) of an investment — the steady annual rate that, if applied every year, would take it from its beginning value to its ending value over a given number of years. CAGR is widely used to describe investment performance in a single, comparable number, smoothing out the year-to-year ups and downs into one average annual rate.
Total return is simply the percentage change from beginning value to ending value. CAGR, however, "smooths" that total return into a single annual rate by taking the nth root of the total growth ratio, where n is the number of years.
Formula: CAGR % = [(Ending Value / Beginning Value)^(1/years) − 1] × 100.
Example: For a $10,000 investment that grew to $18,000 over 5 years, the total return is 80%, but the CAGR (average annual return) is roughly 12.5% per year. (Note: all figures in this example are for illustration purposes only.)
Real investments rarely grow at a perfectly steady rate — a stock might gain 25% one year and lose 10% the next. CAGR represents the single steady rate that would produce the same overall result, making it useful for comparing investments held over different time periods or with very different year-to-year volatility. However, CAGR doesn't show the "ride" along the way — two investments with the same CAGR could have had very different levels of volatility, which matters for risk assessment beyond just the average return figure.
CAGR stands for Compound Annual Growth Rate. It represents the constant annual rate of return that would take an investment from its beginning value to its ending value over a specified number of years, smoothing out year-to-year fluctuations.
Total return is the overall percentage change, while CAGR is the equivalent annual rate. For periods longer than a year, an annual rate that compounds will be smaller than the cumulative total, since compounding amplifies smaller numbers over multiple years.
No. This calculator assumes the beginning and ending values represent the same investment with no additional contributions or withdrawals. If you added or removed money during the period, CAGR based on these two values alone won't accurately reflect your personal return.
Not necessarily. CAGR doesn't capture volatility or risk — an investment with a high CAGR but wild year-to-year swings may be riskier than one with a slightly lower but more stable CAGR, depending on your risk tolerance.
Yes. If the ending value is lower than the beginning value, CAGR will be negative, reflecting an average annual loss over the period.
A simple (arithmetic) average of yearly returns can overstate actual growth because it doesn't account for compounding. CAGR (a geometric measure) reflects the actual compounded growth from beginning to ending value, which is generally a more accurate measure of investment performance over multiple years.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not account for taxes, fees, inflation, or additional contributions/withdrawals during the period. Financial rules and regulations change frequently. Always consult a qualified financial advisor before making any financial decisions.