Average Return Calculator
Calculate the compound annual growth rate (CAGR) of an investment from its starting value, ending value, and the number of years held — the single number that summarises average annual performance with compounding.
Average annual return (CAGR)
24.93%
- Total gain
- £9,500.00
- Total return
- 95%
- Growth multiple
- 1.95
The compound annual growth rate is the constant yearly rate that, compounded annually, would take the initial value to the ending value over the chosen number of years. Total return is the simple percentage change; total gain is the absolute change in dollars; growth multiple is the ratio of ending value to initial value.
How to use this calculator
Enter the amount originally invested, the value of the investment today (or on the date you are measuring), and the number of years between the two. The calculator returns the average annual return as a compound annual growth rate (CAGR), along with the simple total return, the absolute gain in dollars, and the growth multiple. Use it to compare investments held for different lengths of time on a like-for-like basis, to summarise the long-run performance of a fund or stock, or to back into the rate of return a portfolio needs to hit a target value.
How the calculation works
The compound annual growth rate satisfies the equation FV = PV × (1 + r)^n, where PV is the initial value, FV is the ending value, n is the number of years, and r is the annual rate. Rearranging gives r = (FV / PV)^(1/n) − 1, which the calculator evaluates directly. CAGR is preferred to the arithmetic mean of yearly returns because it accounts for compounding — averaging +50% and −50% gives 0% in arithmetic terms but a real loss of 25% over two years, and CAGR reports the latter. Total return is the simple percentage change, ignoring time. Growth multiple is the ratio of ending to initial value.
Worked example
An investor puts 10,000 into a fund. Three years later the fund is worth 19,500. The growth multiple is 19,500 / 10,000 = 1.95, and the CAGR is 1.95^(1/3) − 1 = 0.2493, or 24.93% per year. The simple total return is 95%, but compounded over three years that works out to just under 25% annually. To sense-check: 10,000 × 1.2493^3 ≈ 19,500.
Frequently asked questions
What is the difference between CAGR and the average annual return?
CAGR is the geometric mean of the yearly returns — the constant annual rate that, compounded, would take the starting value to the ending value. The "average annual return" usually means the arithmetic mean of the yearly returns, which ignores compounding and overstates performance when returns are volatile. CAGR is the honest number when comparing investments. This calculator returns CAGR and refers to it as the average annual return because that is how most retail investors search for it.
Does this account for additional contributions or withdrawals?
No. The CAGR formula assumes a single lump-sum invested at the start and untouched until the end. If you added money along the way or took withdrawals, the right measure is money-weighted return (also known as internal rate of return or IRR), which Calc Dragon has a separate calculator for. CAGR is only valid for a buy-and-hold investment with no cashflows in between.
How does CAGR compare to total return?
Total return is the simple percentage change from start to end, regardless of how long it took. CAGR annualises that change, allowing investments held for different lengths of time to be compared. A 50% total return over two years is a 22.5% CAGR; the same 50% over five years is just 8.4% CAGR. Always ask for the holding period when someone quotes a total return.
Why does the calculator return a negative CAGR?
When the ending value is below the initial value, the investment lost money and the CAGR is negative — the constant annual rate at which the investment shrank to its ending value. A negative CAGR is mathematically valid as long as the ending value is positive; if the investment is completely wiped out, the calculator reports −100%.
Does CAGR show how volatile an investment was?
No. CAGR is a single number that smooths out all the ups and downs. An investment that returned a steady 8% every year and one that swung wildly between +40% and −20% could end up at the same place and the same CAGR, but the experience of holding them is very different. To capture volatility, look at the standard deviation of yearly returns or the maximum drawdown alongside CAGR.
Should I use CAGR for forecasting future returns?
Cautiously. CAGR tells you what an investment did, not what it will do. Future returns are uncertain and past performance is not a guarantee. CAGR is most useful for backward-looking comparisons — judging how a fund did against a benchmark over the same period — rather than as a forward forecast. For forecasts, use a calculator that lets you input an expected return separately, such as the compound interest or investment calculator.