Average Return Calculator
Average return (CAGR — Compound Annual Growth Rate) is the constant annual growth rate that would produce the same result as actual investment growth over a period. Unlike simple average return, CAGR accounts for compounding and gives a more meaningful comparison.
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Tip: CAGR does not show volatility. Two investments with the same CAGR can have very different risk profiles. A 20% gain followed by a 20% loss results in a −4% total return, not 0%.
- 1CAGR = (End Value / Start Value)^(1/Years) − 1
- 2Total return = (End − Start) / Start × 100%
- 3Simple average of annual returns can be misleading with volatility
- 4CAGR is always lower than or equal to the arithmetic mean of annual returns
$10,000 grows to $18,000 over 5 years=CAGR = 12.47%/year(18000/10000)^(1/5) − 1
S&P 500: $10,000 in 1990 → $170,000 in 2023=CAGR ≈ 10.7%/yearConsistent with long-term market history
| Asset Class | Approximate CAGR | Notes |
|---|---|---|
| US large-cap stocks (S&P 500) | 10–11% | Before inflation ~7–8% real |
| US bonds (10-year Treasury) | 4–5% | Varies with interest rate environment |
| Real estate | 3–5% | Price appreciation only, excluding rent |
| Gold | 1–4% | Long-term real return close to inflation |
| Savings account (high-yield) | 2–5% | Depends on Fed rate |
| Inflation (CPI) | 2–3% | Historical US average |
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Fun Fact
The Rule of 72 is a quick CAGR mental math tool: divide 72 by the annual return to estimate years to double. At 10% CAGR: 72/10 = 7.2 years to double.
References
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