ROI / Investment Return Calculator

What Is CAGR (Compound Annual Growth Rate)?

CAGR stands for Compound Annual Growth Rate. It measures the average annual rate of return on an investment over a specified period, assuming profits are reinvested each year. The formula is CAGR = (Final Value / Initial Investment)^(1/Years) - 1. CAGR is one of the most accurate ways to compare the performance of different investments over time.

Total Return vs. Annualized Return

Total return is the overall gain or loss on an investment expressed as a percentage: (Final - Initial) / Initial x 100. While total return tells you how much you made overall, annualized return (CAGR) tells you the equivalent yearly rate, making it easier to compare investments held for different time periods. For example, a 100% total return over 10 years equals a CAGR of about 7.18%.

How the What If Projector Works

The What If section lets you project the future value of an investment based on an initial amount, expected annual return, and number of years. It uses the compound interest formula: Final Value = Initial x (1 + Rate)^Years. This is useful for setting investment goals and understanding how different return rates affect long-term growth.

Frequently Asked Questions

What is a good annual return for investments?

Historical stock market averages (S&P 500) are roughly 10% nominal and 7% real (after inflation). Bonds typically return 4-6%, and savings accounts 1-5% depending on interest rates. A “good” return depends on your risk tolerance and investment type.

Does CAGR account for risk?

No. CAGR smooths out volatility and shows a single average growth rate. Two investments can have the same CAGR but very different risk profiles. Always consider standard deviation, drawdowns, and your investment timeline alongside CAGR.