Average Return Calculator: CAGR, Real Returns, and How to Use It
See how your investmentโs compound annual growth rate (CAGR) is calculated, how real return adjusts for inflation, and how to compare results with taxes and benchmarks. All math runs in your browser.
How the Calculator Gets CAGR and Real Return
The CAGR Formula
- Vโ (Starting value):Portfolio or investment value at the beginning of the period.
- Vโ (Ending value):Value at the end of the period.
- n (Years):Length of the period in years. For a 10-year span, n = 10; the exponent 1/n annualizes the total growth.
- What it does:CAGR answers: โWhat constant annual return would have turned Vโ into Vโ over n years?โ Itโs the geometric mean of growth, not the arithmetic average of yearly returns.
The calculator uses the standard compound annual growth rate formula. Given a starting value, ending value, and number of years, the CAGR is:
where:
CAGR assumes growth is compounded once per year. It does not show interim volatility or sequence of returnsโonly the smoothed rate from start to end.
Real Return (Inflation-Adjusted)
- Why geometric:Inflation compounds over time. Dividing (1 + nominal) by (1 + inflation) gives the correct real growth rate per year.
- Inflation loss:The โInflation Lossโ in the results is the dollar difference between your nominal ending value and the value in todayโs purchasing powerโthe part of your gain that is offset by higher prices.
Real return measures purchasing power, not just dollar growth. The calculator uses the geometric relationship between nominal return and inflation:
(expressed as a percentage). So if your nominal CAGR is 10% and inflation is 3%, real return is (1.10 / 1.03) โ 1 โ 6.8%.
This tool focuses on return, inflation, and tax on the gain.
CAGR vs Simple Average and Why It Matters
Volatility drag
A simple average of yearly returns can be misleading. Two years of +50% and โ50% give a 0% simple average, but youโre actually down 25%: $100 โ $150 โ $75. CAGR captures that outcome; the calculator uses CAGR so you see the true annualized growth.
When to use CAGR
CAGR is useful for comparing different investments over the same period or the same investment over different periods. It doesnโt tell you about risk, drawdowns, or the order of good and bad yearsโonly the smoothed rate from start to finish.
Tax and Benchmark Context
Tax-adjusted CAGR
If you enter an estimated tax rate, the calculator applies it to the total gain (ending value minus starting value) and computes an after-tax ending value. Tax-adjusted CAGR is the annualized return from start to that after-tax end value. Itโs illustrative; actual tax depends on holding period, account type (taxable vs IRA), and jurisdiction.
Market delta (vs S&P)
The โMarket Deltaโ compares your CAGR to a rough historical benchmark of about 10% for the S&P 500. Thatโs for context onlyโpast performance doesnโt predict future results, and your period may not match long-term averages.
Who This Calculator Is For
Investors reviewing performance
Use it to annualize the return between two portfolio values (e.g. from a statement or spreadsheet). Enter start value, end value, and years to get CAGR and real return.
Planning with inflation in mind
Adjust the inflation rate to see how much of your growth is real versus nominal. That helps with retirement and long-term goal setting.
Transparency and limits
All calculations run in your browser; no data is sent to servers. Results are estimates. Inflation and tax are simplified; for specific tax or investment advice, use a qualified professional.
Average Return & CAGR FAQ
What is a good average annual return for a portfolio?
Historical long-term returns for a 100% equity portfolio (e.g. S&P 500) have been around 10% per year before inflation. A 60/40 stock-bond mix has often landed in the 6โ8% nominal range. Those are backward-looking; your own results depend on timing, fees, and allocation. Beating inflation by a clear margin has historically been the bar for โgoodโ real returns.
How is CAGR different from simple average return?
A simple average is the sum of each yearโs return divided by the number of yearsโit ignores compounding. CAGR is the single annual rate that would grow your starting value to your ending value over the same period. If you lose 50% one year and gain 50% the next, the simple average is 0% but youโre actually down 25%; CAGR reflects that loss.
How do I calculate CAGR in Excel?
Use =((EndValue/StartValue)^(1/Years))-1, or the built-in =RRI(Years, StartValue, EndValue). Both give a decimal; format as percentage to match the calculator.
Is 7% a realistic annual return for the stock market?
Over long periods, US stocks have delivered roughly 6.5โ7% per year after inflation (real return). Nominal returns have been higher but vary a lot year to year. Past results donโt guarantee future performance; use 7% as a rough long-term planning guide, not a promise.
What is real return vs nominal return?
Nominal return is the raw percentage gain (e.g. 10% per year). Real return is whatโs left after inflationโit reflects purchasing power. If your investment grows 10% and inflation is 3%, your real return is about 6.8%. The calculatorโs โReal Returnโ uses the geometric formula: (1 + nominal) / (1 + inflation) โ 1.
Why does the calculator show inflation loss?
Inflation loss is the gap between your nominal ending value and the value in todayโs purchasing power. Itโs the dollar amount of growth that is โeatenโ by higher prices. Seeing it helps you judge whether youโre actually getting ahead in real terms.