What this calculator answers
Three numbers from three inputs:
- Net gain (or loss): how much money you actually made or lost in dollars.
- Total ROI: percentage return over the entire holding period.
- Annualized return (CAGR): what the same return looks like as an average yearly rate.
The annualized number is the one that lets you compare investments of different lengths. A 50% return over 10 years is not as good as a 50% return over 2 years, same total, completely different annual pace. The CAGR formula rolls the time component into the percentage so two investments are comparable head-to-head.
How CAGR is calculated
CAGR (Compound Annual Growth Rate) assumes the gain is reinvested smoothly across the holding period, like compound interest running in reverse. The math:
CAGR = (Final / Initial)^(1/years) − 1
For an investment that doubles in 10 years, CAGR is 7.18%. That’s the rule-of-72 shortcut: 72 ÷ 7.18 ≈ 10 years to double. Useful mental math.
CAGR isn’t your actual year-by-year return, real investments fluctuate. It’s a smoothed average that tells you what fixed annual rate would have produced the same end result.
What “good” ROI looks like
Reference points for context:
- High-yield savings: 4-5% annualized currently. Effectively risk-free.
- 10-year US Treasury: 3.5-4.5% historically. Sovereign-credit risk only.
- Investment-grade corporate bonds: 5-6%. Modest credit risk.
- S&P 500 long-run: ~10% nominal, ~7% real (inflation-adjusted). Substantial year-to-year volatility.
- VC-backed startups: 20-30% target for top-quartile funds. High failure rate offset by occasional 100x outcomes.
- Real estate (residential): ~8-10% annualized including rent and appreciation, before maintenance and management.
- Bitcoin (since 2010): ~50% CAGR. Past returns no longer expected; future volatility extreme.
If your annualized return beats the S&P 500 over a 5+ year horizon, you’re outperforming most professional investors. Most active managers do not beat the index after fees.
Why total return alone is misleading
A 3-year investment that returned 30% sounds great. As CAGR, that’s 9.14% annualized, solid but in line with the index. Compare that to a 5-year investment that returned 50%: total ROI looks higher, but CAGR is 8.45%, slightly lower. The shorter investment was actually more efficient.
This is why fund prospectuses and 401(k) statements report annualized returns rather than total returns over different periods. Without normalizing for time, comparison is meaningless.
Things this calculator does not factor in
- Inflation: a 7% nominal return at 3% inflation is 4% real. For long horizons, real returns are what fund retirement.
- Taxes: capital gains tax (15-20% in most US brackets) cuts into actual realized return. Tax-deferred accounts (401k, IRA) preserve the calculation.
- Fees: management fees and expense ratios compound against you. A 1% annual fee over 30 years cuts terminal wealth by about 25%.
- Cash flows: if you added money or withdrew during the period, this calculator overstates the return. For ongoing contributions, internal rate of return (IRR) is the right tool, most calculators that handle that are more complex.
Frequently asked questions
My broker shows a different number, why? Brokers usually compute time-weighted return for portfolios, which adjusts for inflows and outflows. This calculator uses simple start-to-end values, which is correct for a single buy-and-hold position but wrong for accounts with regular contributions.
What if my “investment” lost money? Enter the values anyway. The calculator handles negative gains and shows the loss in red. CAGR works for negative returns too, it’ll show how much you lost on an annualized basis.
Should I use this for real estate ROI? For pure appreciation, yes. For rental property where you also collect rent, you’d need to add rental income to the final value (and subtract operating expenses) to get a meaningful total return. Pure-appreciation ROI understates real estate’s actual performance.
What about crypto? Same math, more volatility. Annualized returns for crypto are real but the volatility is so high that any one-year window can be wildly off the long-run average. Treat short-period CAGRs on volatile assets with skepticism.