Annualised return (CAGR)
Turn a total gain into the equivalent annual rate so you can compare like for like.
Calculator inputs
Results
Enter your values and press “Calculate” to see the result.
In short
- What it calculates
- Turn a total gain into the equivalent annual rate so you can compare like for like.
- Formula used
CAGR = [(Vf / Vi)^(1/t) − 1] × 100- Example
- From £10,000 to £18,000 in 6 years:
Annualised return calculator
Making 80% sounds very different depending on whether it took two years or twenty. CAGR translates any gain into the equivalent annual rate.
It is the only fair way to compare investments of different lengths.
How it works
It works out which constant annual rate, compounded, would take the initial value to the final one over the number of years given.
Formula
CAGR = [(Vf / Vi)^(1/t) − 1] × 100
Total return = (Vf − Vi) / Vi × 100
Worked example
From £10,000 to £18,000 in 6 years:
Total return: 80%
CAGR = (1.8^(1/6) − 1) × 100 = 10.3% per year
Explanation
Why CAGR is lower than the simple average
If an investment gains fifty per cent one year and loses fifty the next, the arithmetic mean is zero, but you have lost twenty-five per cent of your capital. The compound annual growth rate reflects that reality and the simple average does not. The more volatile the investment, the wider the gap between the two figures.
Return is not the same as gain
Doubling your money in twenty years sounds good, but it equates to 3.5 per cent a year, below inflation in many periods. Annualising is the only way to compare investments of different lengths and to know whether you have genuinely gained purchasing power.
With contributions along the way
If you have been paying money in or taking it out, the CAGR calculated on opening and closing balances does not measure your real return. That needs a money-weighted internal rate of return, which accounts for when each euro arrived.
Comparing against a benchmark
Eight per cent a year looks excellent until you find the benchmark index did twelve over the same period. Any return should be compared with the equivalent passive alternative and with the risk taken.
Frequently asked questions
Why is CAGR lower than total return divided by the years?
Because growth compounds: each year starts from a larger base, so a smaller annual percentage is needed than you might expect.
Can I compare it with a savings account?
Yes, and that is exactly the point: CAGR is directly comparable with the annual rate of any product.
Why does gaining and losing the same percentage leave a loss?
Because the loss applies to a larger capital. Up 50% then down 50% leaves 75% of the original money, not 100%.
Is CAGR valid if I made contributions?
No, because it ignores when each amount arrived. In that case use a money-weighted internal rate of return.
Need to calculate something else?
These tools are often used alongside this calculator.
ROI
Measure the percentage return of any investment or campaign.
Compound interest
How much your money grows with regular contributions, and what it is really worth once inflation and fees…
Investment
Future value of an investment and what it is really worth after inflation.
Inflation
What your money will be worth in a few years at a given inflation rate.
Loan
Monthly payment, total interest, APR with fees and insurance, and how principal and interest split each year.
Mortgage
Monthly payment, total interest and the cash you need upfront to buy a home.