What this calculator does
The Average Return Calculator computes the compound annual growth rate (CAGR) of an investment—the steady yearly percentage by which your money grew from start to finish. It answers the question: "What was my average annual return?" in a way that accounts for compounding.
How it works
You enter three pieces of information: what you started with, what you ended with, and how many years passed. The calculator then determines the single annual growth rate that would transform your beginning balance into your ending balance if applied consistently each year.
This is more realistic than a simple average because it reflects how gains compound. If your investment doubled in 5 years, the calculator shows you the exact annual rate needed to achieve that doubling, not just "20% per year" (which would overshoot due to compounding).
The formula
CAGR = (Ending Value ÷ Beginning Value) ^ (1 ÷ Number of Years) − 1
Worked example
Suppose you invested $5,000 in a mutual fund on January 1, 2019, and it grew to $6,724 by January 1, 2024 (5 years later).
Step 1: Divide ending by beginning value
- $6,724 ÷ $5,000 = 1.3448
Step 2: Raise to the power of (1 ÷ years)
- 1 ÷ 5 = 0.2
- 1.3448 ^ 0.2 = 1.0618
Step 3: Subtract 1 and convert to percentage
- 1.0618 − 1 = 0.0618
- 0.0618 × 100 = 6.18% CAGR
This means your investment grew at an average rate of 6.18% per year. To verify: $5,000 growing at 6.18% annually for 5 years reaches approximately $6,724.
Common mistakes to avoid
Using the wrong time period: Always measure from your actual purchase date to your exit date or today's date. If you bought on March 15, 2020 and sold on September 10, 2024, that's roughly 4.48 years, not 4 or 5.
Forgetting to account for cash flows: CAGR compares only start and end values. If you added $2,000 mid-way, don't include it in the beginning value—the calculator assumes that money wasn't there from day one. For portfolios with regular deposits or withdrawals, a money-weighted return is more accurate.
Mixing gross and net values: Decide whether to use pre-tax or post-tax figures, and be consistent. If you owe capital gains tax, your actual take-home CAGR is lower than the gross number.
Confusing CAGR with annual volatility: A 10% CAGR doesn't mean the investment returned exactly 10% each year. Some years it may have jumped 25%; others it may have fallen 5%. CAGR smooths those bumps into one representative rate.
This is an estimate, not professional investment advice. Consult a financial advisor for decisions about your specific portfolio.