Simple Annual Rate of Return Calculator
Total Profit/Loss
Total Return (ROI)
Simple Annual Return
CAGR (Compound)
Understanding the Simple Annual Rate of Return
Investors often need to compare the performance of different assets held over varying periods. The Simple Annual Rate of Return Calculator helps you determine how much your investment has grown (or shrunk) on an average yearly basis, without the complexity of compounding interest in the initial "simple" calculation, while also providing the CAGR for comparison.
This metric is crucial for evaluating stocks, real estate, bonds, or small business investments to ensure your capital is working efficiently for you.
How It Is Calculated
There are two primary ways to look at annual returns provided by this tool:
- Total Return (ROI): The raw percentage growth from start to finish.
Formula: (Final Value – Initial Value) / Initial Value - Simple Annual Return: The Total Return divided by the number of years. This assumes the profit was generated equally each year, non-compounded.
Formula: Total Return / Years - CAGR (Compound Annual Growth Rate): This represents the steady rate at which an investment would have grown if it had grown at the same rate every year with compounding.
Formula: (Final Value / Initial Value)^(1 / Years) – 1
Real-World Example
Imagine you purchased a vintage car or a stock portfolio for $10,000. After holding it for 5 years, you sell it for $15,000.
- Profit: $5,000
- Total Return: 50% ($5,000 / $10,000)
- Simple Annual Return: 10% per year (50% / 5 years).
- CAGR: ~8.45%. This is often lower than the simple average because it accounts for the mathematical fact that growing a base amount requires a compounded rate.
Why Differentiate Simple vs. Compound?
The Simple Annual Return is excellent for quick mental math and understanding the arithmetic average yield (like simple interest on a bond). However, for reinvested dividends or long-term growth stocks, the CAGR is generally considered the "true" annual return metric by financial professionals because it reflects the geometric progression of wealth.
Tips for Using This Calculator
Ensure you include all costs in your "Initial Investment Value" (such as brokerage fees or closing costs) and deduct selling fees from your "Final Investment Value" to get the most accurate net return figures.