Calculating investment return is fundamental to understanding the profitability of your investments. It helps you gauge how well your money has performed over a specific period. There are several ways to measure return, but the most common are Simple Return and Annualized Return (Compound Annual Growth Rate – CAGR).
Simple Return
Simple return measures the total percentage gain or loss on an investment relative to its initial cost. It's straightforward and easy to understand for shorter periods.
When an investment spans multiple years, the simple return doesn't account for the compounding effect of reinvested earnings. The Compound Annual Growth Rate (CAGR) provides a smoothed average annual rate of return over a specific period, assuming profits were reinvested each year. It's a more realistic measure for longer-term investments.
The formula for CAGR is:
CAGR = ((Final Value / Initial Investment) ^ (1 / Number of Years)) - 1
To express this as a percentage, you multiply the result by 100.
Using the same example: Initial Investment = $10,000, Final Value = $12,000, Period = 5 years.
This means that your investment grew, on average, by 3.71% each year for five years, compounding annually, to reach its final value.
Use Cases
Performance Evaluation: Compare the performance of different investment options.
Goal Setting: Determine realistic growth expectations for financial planning.
Decision Making: Inform future investment choices based on past performance.
Reporting: Provide clear metrics for investors and stakeholders.
This calculator helps you quickly compute both the simple return and the annualized return (CAGR) for your investments, providing valuable insights into your financial performance.
function calculateReturn() {
var initialInvestment = parseFloat(document.getElementById("initialInvestment").value);
var finalValue = parseFloat(document.getElementById("finalValue").value);
var investmentPeriod = parseFloat(document.getElementById("investmentPeriod").value);
var resultDiv = document.getElementById("result");
// Clear previous results
resultDiv.innerHTML = ";
// Validate inputs
if (isNaN(initialInvestment) || isNaN(finalValue) || isNaN(investmentPeriod)) {
resultDiv.innerHTML = 'Please enter valid numbers for all fields.';
return;
}
if (initialInvestment <= 0) {
resultDiv.innerHTML = 'Initial Investment must be greater than zero.';
return;
}
if (investmentPeriod <= 0) {
resultDiv.innerHTML = 'Investment Period must be greater than zero.';
return;
}
// Calculate Simple Return
var simpleReturn = ((finalValue – initialInvestment) / initialInvestment) * 100;
// Calculate Annualized Return (CAGR)
var annualizedReturn = (Math.pow((finalValue / initialInvestment), (1 / investmentPeriod)) – 1) * 100;
var resultHTML = '';
// Display Simple Return
resultHTML += 'Simple Return: ' + simpleReturn.toFixed(2) + '%';
resultHTML += 'Total percentage gain or loss over the entire period.';
// Display Annualized Return (CAGR)
resultHTML += 'Annualized Return (CAGR): ' + annualizedReturn.toFixed(2) + '%';
resultHTML += 'Average annual growth rate, compounded.';
resultDiv.innerHTML = resultHTML;
}