Best Calculators

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Tool Verified by David Chen, CFA. Last Updated: October 2025.

Use this best calculators tool—the **Annualized Return Calculator**—to easily find the compound annual growth rate (CAGR) of an investment over a specific time period. This provides a normalized, accurate measure of investment performance.

Annualized Return Calculator

The Annualized Return (CAGR) is:

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Annualized Return (CAGR) Formula

CAGR = [ (Final Value / Initial Investment) ^ (1 / Years) ] - 1

Formula Sources: Investopedia, Khan Academy

Variables Explained

  • Initial Investment ($): The starting market value or principal amount invested.
  • Final Value ($): The ending market value of the investment, including any accumulated gains, interest, or dividends.
  • Holding Period (Years): The total number of years the investment was held. This can be a decimal value (e.g., 2.5 years).
  • Annualized Return (CAGR): The constant rate of return that would be required for an investment to grow from its initial value to its final value, assuming the profits were reinvested at the end of each year.

Related Calculators

What is Annualized Return?

The Annualized Return, or Compound Annual Growth Rate (CAGR), is one of the **best calculators** to measure the success of an investment over a period of time longer than one year. It smooths out volatility by assuming a constant growth rate, making it a valuable metric for comparing the performance of different investment options or fund managers.

Unlike simple return, which only looks at the start and end values, CAGR accounts for compounding. This means it provides a geometric mean rate of return. A fund manager might claim a high total return over five years, but the CAGR reveals the consistent, year-over-year rate of growth that achieved that total.

How to Calculate Annualized Return (Example)

Let’s find the CAGR for an investment that grew from $10,000 to $15,000 over 5 years.

  1. Divide Final Value by Initial Investment: $15,000 / $10,000 = 1.5$
  2. Calculate the Fractional Exponent: The holding period is 5 years, so the exponent is $1/5 = 0.2$.
  3. Raise the Result to the Exponent: $1.5^{0.2} \approx 1.08447$
  4. Subtract 1: $1.08447 – 1 = 0.08447$
  5. Convert to Percentage: $0.08447 \times 100 = 8.45\%$

The Annualized Return (CAGR) is approximately 8.45%.

Frequently Asked Questions (FAQ)

Is Annualized Return the same as IRR (Internal Rate of Return)?
No. CAGR calculates the return on a single investment made at the beginning of the period. IRR calculates the return where multiple cash flows (contributions or withdrawals) occur throughout the investment period.

Why is CAGR better than Simple Return?
Simple return ignores the time value of money and compounding. CAGR provides a more accurate, standardized metric that allows for direct comparison of different investments regardless of their holding period.

What if the Annualized Return is negative?
A negative CAGR means the investment lost value over the period. The calculation still works, as $(Final\ Value / Initial\ Investment)$ will be less than 1.

Does CAGR account for fees?
Only if the Final Value you input is calculated *after* all fees and commissions have been deducted. For an accurate measure, always use the net value of your investment.

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