Average Return Calculator
Calculate the compound annual growth rate (CAGR) of an investment - the smoothed annual return that gets you from a beginning value to an ending value.
Compound annual growth rate (CAGR)
12.14%
What Your Result Means
CAGR expresses an investment's growth as a single smoothed annual rate, even though actual year-to-year returns likely varied. It's the standard way to compare the performance of different investments over different time periods.
How It Is Calculated
CAGR = [(Ending Value / Beginning Value)^(1/Years) - 1] × 100
Worked Example
An investment that grows from $10,000 to $25,000 over 8 years has a CAGR of about 12.1% - meaning it grew as if compounding at 12.1% every year, even if actual annual returns varied.
Important Assumptions
- CAGR smooths out volatility - it doesn't reflect the ups and downs an investment actually experienced along the way.
- Doesn't account for additional contributions or withdrawals during the period - it assumes a single beginning and ending value.
Frequently Asked Questions
- How is CAGR different from average annual return?
- A simple average of yearly returns can be misleading because it ignores compounding. CAGR accounts for compounding and gives a more accurate picture of actual growth over time.
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Methodology
This calculator uses the standard compound annual growth rate formula used throughout finance and investing. See our methodology page for details.
This calculator provides estimates for educational purposes only. Actual rates, taxes, insurance, fees, and lender terms may differ. It does not constitute financial advice - consult a qualified financial professional before making financial decisions.