Annual Rate of Return Calculator

Annual Rate of Return Calculator

Results

Total Return:

Annualized Rate (CAGR):

Total Profit:

function calculateARR() { var initial = parseFloat(document.getElementById("initialValue").value); var final = parseFloat(document.getElementById("finalValue").value); var years = parseFloat(document.getElementById("investmentYears").value); var resultBox = document.getElementById("arr-result-box"); if (isNaN(initial) || isNaN(final) || isNaN(years) || initial <= 0 || years <= 0) { alert("Please enter valid positive numbers for the investment values and duration."); return; } var totalReturnRaw = (final – initial) / initial; var totalReturnPercentage = (totalReturnRaw * 100).toFixed(2); // CAGR Formula: [(Ending / Beginning) ^ (1 / Years)] – 1 var annualReturnRaw = Math.pow((final / initial), (1 / years)) – 1; var annualReturnPercentage = (annualReturnRaw * 100).toFixed(2); var profit = (final – initial).toFixed(2); document.getElementById("totalReturnResult").innerHTML = totalReturnPercentage + "%"; document.getElementById("annualReturnResult").innerHTML = annualReturnPercentage + "% per year"; document.getElementById("totalProfitResult").innerHTML = "$" + profit.replace(/\B(?=(\d{3})+(?!\d))/g, ","); resultBox.style.display = "block"; }

Understanding the Annual Rate of Return

The Annual Rate of Return, often referred to as the Compound Annual Growth Rate (CAGR), is a critical metric used by investors to measure the geometric progression of an investment over a specific period. Unlike a simple total return, which only looks at the start and end points, the annual rate of return provides a smoothed annual growth rate that accounts for the effect of compounding.

Why Use Annualized Returns?

Annualizing returns allows you to compare different investments that were held for different periods of time. For example, a 50% return over 10 years is vastly different from a 50% return over 2 years. By converting these into an annual rate, you can determine which investment truly performed better on a per-year basis.

The Mathematical Formula

The calculation for the annual rate of return is based on the following formula:

Annual Rate = [(Ending Value / Beginning Value)^{(1 / Number of Years)}] – 1

Practical Example

Let's say you invested $10,000 in a stock portfolio. After 5 years, your portfolio is worth $16,105.

• Total Return: 61.05% ($6,105 profit)
• Annual Rate of Return: 10% per year

In this scenario, while the total gain was over 60%, the annual performance shows that the money grew at a steady compounded rate of 10% each year.

Key Factors to Consider

When analyzing your results, keep in mind that the annual rate of return assumes the investment grew at a steady rate. In reality, market investments often experience volatility, with some years being higher and others lower. This calculator provides the theoretical constant rate required to reach the final value from the starting value over the given timeframe.

It is also important to remember that this calculation does not typically account for taxes, inflation, or brokerage fees unless those costs are manually subtracted from your "Ending Investment Value." To get a true sense of your purchasing power growth, you should subtract the average inflation rate from your annualized return result.