How to Calculate Growth Rate of Investment

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Investment Growth Rate Calculator

Determine the Compound Annual Growth Rate (CAGR) of your portfolio.

Compound Annual Growth Rate (CAGR) 0%

Understanding Investment Growth Rate

Calculating the growth rate of an investment is a fundamental skill for any investor. While looking at the total return is helpful, it doesn't account for the time it took to achieve those gains. This is where the Compound Annual Growth Rate (CAGR) becomes essential.

CAGR represents the mean annual growth rate of an investment over a specified period of time longer than one year. It assumes the profits are reinvested at the end of each period of the investment's life span.

CAGR = [(Ending Value / Beginning Value)^(1 / Years)] – 1

How to Calculate Growth Rate: A Step-by-Step Example

Suppose you invested $10,000 in a mutual fund, and after 5 years, your investment grew to $16,105. Here is how you would calculate the growth rate manually:

  • Step 1: Divide the ending value by the beginning value ($16,105 / $10,000 = 1.6105).
  • Step 2: Raise the result to the power of 1 divided by the number of years (1.6105 ^ (1/5) = 1.10).
  • Step 3: Subtract 1 from the result (1.10 – 1 = 0.10).
  • Step 4: Multiply by 100 to get the percentage (0.10 * 100 = 10%).

In this example, your investment had a 10% annual growth rate over the five-year period.

Why CAGR Matters More Than Simple Average

The simple average growth rate can be misleading in finance because investments are subject to volatility. For instance, if a portfolio drops by 50% in year one and gains 50% in year two, a simple average suggests a 0% return. However, in reality, you would still be down 25% from your original principal. The CAGR calculation correctly identifies this loss, providing a "smoothed" annual rate that reflects actual performance.

Key Limitations

While the growth rate calculator is powerful, it has limitations:

  • Ignore Volatility: It doesn't show the "ups and downs" that occurred during the time frame.
  • External Cash Flows: This specific formula assumes no additional deposits or withdrawals were made between the start and end dates.
  • Past vs. Future: Past growth rates are never a guarantee of future performance.
function calculateInvestmentGrowth() { var initial = parseFloat(document.getElementById('initialValue').value); var final = parseFloat(document.getElementById('finalValue').value); var years = parseFloat(document.getElementById('timeYears').value); var resultBox = document.getElementById('resultBox'); var cagrDisplay = document.getElementById('cagrResult'); var totalText = document.getElementById('totalGrowthText'); if (isNaN(initial) || isNaN(final) || isNaN(years) || initial <= 0 || years <= 0) { alert("Please enter valid positive numbers. Initial investment and years must be greater than zero."); return; } // CAGR Formula: ((End / Start)^(1 / Years)) – 1 var cagr = (Math.pow((final / initial), (1 / years)) – 1) * 100; // Total Absolute Growth: ((End – Start) / Start) * 100 var totalGrowth = ((final – initial) / initial) * 100; cagrDisplay.innerText = cagr.toFixed(2) + "%"; totalText.innerText = "Your total absolute growth over " + years + " years was " + totalGrowth.toFixed(2) + "%."; resultBox.style.display = 'block'; // Smooth scroll to result resultBox.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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