Average Return Calculator: CAGR & Real Returns

Average Return Calculator: CAGR, Real Returns, and How to Use It

$10,000 grown to $19,672 over 10 years is a 7% CAGR. Subtract 3% inflation and the same gain represents about 3.9% in real purchasing power, which is what most long-term planning should target instead of the headline number.

What This Calculator Does

Two account statements four years apart, $40,000 then $52,000, give you a $12,000 gain. The calculator converts that into the constant annual rate that would have produced it: 6.8% per year. CAGR is the smoothed annual return that would have generated your actual end value from your start value if growth had been perfectly steady, which makes it the standard way to compare investments that ran for different lengths of time.

Key outputs:

Nominal CAGR, real (inflation-adjusted) return, inflation loss in dollars, tax-adjusted ending value and CAGR, and a market delta comparing your result to a rough S&P 500 benchmark.
What it does not handle:

Interim contributions or withdrawals, sequence-of-returns risk, and account-specific tax treatment (taxable vs. IRA) all sit outside the model. For projections with ongoing contributions, use a compound interest calculator.

How the Calculator Gets CAGR and Real Return

The CAGR Formula

The calculator uses the standard compound annual growth rate formula. Given a starting value, ending value, and number of years, the CAGR is:

\text{CAGR} = \left(\frac{V_n}{V_0}\right)^{1/n} - 1

where:

V₀ (Starting value):

Portfolio or investment value at the beginning of the period.
Vₙ (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: “What constant annual return would have turned V₀ into Vₙ over n years?” It’s the geometric mean of growth, not the arithmetic average of yearly returns.

CAGR assumes growth is compounded once per year. It does not show interim volatility or sequence of returns, only the smoothed rate from start to end.

Real Return (Inflation-Adjusted)

Real return measures purchasing power, not just dollar growth. The calculator uses the geometric relationship between nominal return and inflation:

\text{Real} = \frac{1 + \text{CAGR}/100}{1 + \text{Inflation}/100} - 1

(expressed as a percentage). So if your nominal CAGR is 10% and inflation is 3%, real return is (1.10 / 1.03) − 1 ≈ 6.8%.

Why geometric:

Inflation compounds over time. Dividing (1 + nominal) by (1 + inflation) gives the correct real growth rate per year.
Inflation loss:

The “Inflation Loss” in the results is the dollar difference between your nominal ending value and the value in today’s purchasing power, the part of your gain that is offset by higher prices.

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 −50% give a 0% simple average, but you’re actually down 25%: $100 → $150 → $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 doesn’t tell you about risk, drawdowns, or the order of good and bad years, only 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. It’s illustrative; actual tax depends on holding period, account type (taxable vs IRA), and jurisdiction.

Market delta (vs S&P)

The "Market Delta" compares your CAGR to roughly 10%, the S&P 500's nominal long-run average. It's useful for context, but a 5-year window that included 2008 looks very different from one that included 2017; your period matters as much as the headline benchmark does.

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 6–8% 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 “good” real returns.

How is CAGR different from simple average return?

A simple average is the sum of each year’s return divided by the number of years, it 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 you’re 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 6.5–7% per year after inflation (real return). Nominal returns have been higher but vary a lot year to year. Past results don’t 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 what’s left after inflation, it reflects purchasing power. If your investment grows 10% and inflation is 3%, your real return is about 6.8%. The calculator’s “Real Return” uses the geometric formula: (1 + nominal) / (1 + inflation) − 1.

Why does the calculator show inflation loss?

Inflation loss is the gap between your nominal ending value and the value in today’s purchasing power. It’s the dollar amount of growth that is “eaten” by higher prices. Seeing it helps you judge whether you’re actually getting ahead in real terms.

Average Return Calculator: CAGR & Growth Model

Investment inputs

Inflation & tax

Inflation & returns

Tax liability (modeled)

Growth vs. purchasing power

How Average Returns and CAGR Are Calculated

Key Concepts

CAGR (Compound Annual Growth Rate)

Real vs Nominal Return

Inflation and Tax

Rule of 72