Average Rate of Return Calculator: Measure Investment Performance Easily
Use the calculator to convert any total return into its annual compound growth rate. Enter the overall gain (e.g., 25 %) and the holding period (e.g., 3 years); the tool returns the yearly average—in this case 7.72 %. The long-term S&P 500 CAGR is roughly 10 % (S&P Dow Jones Indices, 2023).
Average Rate of Return Calculator
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How to use the tool
Type your total rate of return (%)
Example A: 25 Example B: 90
Enter the number of years held
Example A: 3 Example B: 7
Press “Calculate” to see the compound annual growth rate (CAGR) expressed as a percentage.
Global inflation-adjusted equity return: ≈ 5.3 % (Dimson et al., Credit Suisse Yearbook 2022).
Median U.S. mutual-fund holding period: 5.5 years (ICI Fact Book 2023).
IRR and CAGR converge when cash flows occur only at start/end (Damodaran, 2012).
FINRA recommends using annualized returns for cross-fund comparisons (FINRA Investor Tips, 2021).
FAQ
What does the calculator measure?
It transforms a multi-year total return into a single annual growth rate, mirroring compound interest effects (Investopedia, CAGR).
Why not use a simple average of yearly returns?
Simple averages ignore compounding; CAGR reflects “the rate at which an investment would have grown if it had grown at a steady rate” (Morningstar Glossary).
Can CAGR be negative?
Yes. A loss of 30 % in value over 2 years yields a CAGR of −16.35 %, signalling annual shrinkage.
How accurate is CAGR for volatile assets?
CAGR smooths volatility; pair it with standard deviation to gauge risk (CFA Institute, 2020).
Does the formula include inflation?
No. Subtract the average inflation rate to obtain a real CAGR (Bureau of Labor Statistics, CPI Guide).
How long should I hold data to trust the result?
Finance scholars suggest at least one full market cycle—about 7–10 years—for meaningful CAGR comparisons (Campbell & Shiller, Yale Notes).
Is a higher CAGR always better?
Higher returns often carry higher volatility; compare Sharpe ratios to judge reward per unit of risk (Sharpe, 1966).
Can I project future returns using the output?
Use CAGR as a baseline, but stress-test plans with lower scenarios because “past performance does not guarantee future results” (SEC Investor.gov).
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