How to Use Our Average Return Calculator
To find your investment’s average return, you only need three simple pieces of information.
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Initial Investment ($): Enter the total amount of money you first invested.
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Final Investment Value ($): Enter the current market value of your investment.
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Investment Length (Years): Input the total number of years you have held the investment.
Understanding Your Results
The number this calculator provides is your Annualized Average Return. This isn’t just a simple average; it’s the geometric mean, which gives a far more accurate picture of your investment’s performance because it accounts for compounding.
This is also known as the Compound Annual Growth Rate (CAGR). It’s the hypothetical rate at which your investment would have grown if it grew at the same rate every single year.
The formula used is:
CAGR=(Beginning ValueEnding Value)Number of Years1−1
Why Annualized Return is Better Than Simple Average
A simple average can be misleading. Imagine you invest $1,000.
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Simple Average: A 50% gain and a 50% loss looks like a 0% average return. (50% - 50%) / 2 = 0%.
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Actual Result: You actually lost $250!
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Annualized Return (CAGR): The calculator would show an annualized return of -13.4%, reflecting your actual loss. This is the true measure of your investment’s performance.
Frequently Asked Questions
What is the Compound Annual Growth Rate (CAGR)?
The Compound Annual Growth Rate (CAGR) is the specific formula used to calculate an investment’s average annual return over a period of time. It is the most accurate measure because it considers the effect of compounding. Our calculator automatically computes the CAGR for you based on your inputs. It answers the question: “At what constant rate did my investment grow each year to get from the starting value to the ending value?”
What is a “good” average return on investment?
A “good” return is relative and depends on several factors:
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Risk Tolerance: Higher-risk investments like individual stocks should ideally generate higher returns than lower-risk investments like bonds to compensate for the added risk.
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Investment Type: The expected return for real estate differs from that of a tech stock or a government bond.
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Market Benchmarks: A common benchmark is the S&P 500 index, which has historically returned an average of about 10% per year. If your stock portfolio’s return is higher than the S&P 500’s return over the same period, you are “beating the market.”
How does inflation impact my investment returns?
Inflation reduces the purchasing power of your money. The return shown by the calculator is the nominal return. To find your real return, you must subtract the rate of inflation.
Simple Formula: Real Return ≈ Nominal Return - Inflation Rate
Example: If your investment had an average return of 8% but inflation was 3% over the same period, your real return is approximately 5%. This means your actual purchasing power only grew by 5%.
Does this calculator include dividends or additional contributions?
This calculator is designed to measure the return of a single, lump-sum investment. It does not account for additional contributions, withdrawals, or dividends that are not automatically reinvested into the final value. If you make regular contributions to your investment (like in a 401(k)), you would need a more advanced tool like an Internal Rate of Return (IRR) calculator.
How are investment gains taxed?
When you sell an investment for a profit, that gain is typically subject to capital gains tax. The tax rate depends on how long you held the investment:
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Short-Term Capital Gains: For investments held for one year or less. These are taxed at your ordinary income tax rate, which is higher.
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Long-Term Capital Gains: For investments held for more than one year. These are taxed at lower rates (0%, 15%, or 20% for most people as of 2025).
Tax laws are complex and can change, so it’s always best to consult with a qualified tax professional.
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