Why annualized growth is important
Annualized growth converts a multi-year change into an equivalent yearly rate. This makes it easier to compare different investments, benchmarks, and time periods. A single annualized rate is a common metric used by investors, fund managers, and analysts to show consistent performance over time.
When to use this calculator
Use the calculator when you have a single initial value and a single final value and want to know the equivalent yearly return. Typical use cases include comparing mutual fund returns, stock investments, or the growth of a portfolio over a period with no intermediate contributions.
Illustrative example
Example: If you invested 100000 and it grew to 250000 in 5 years and 3 months, this tool calculates the annualized rate that turns 100000 into 250000 over that period. That annualized figure helps compare this investment with others or with a benchmark index.
Problems and solutions
Problem: Comparing returns from different time spans gives misleading conclusions.
Solution: Convert all returns to an annualized metric before comparing to ensure an apples-to-apples comparison.
Problem: Ignoring inflation exaggerates results.
Solution: Use the inflation adjustment option to see real purchasing power growth.
Problem: Portfolios with contributions or withdrawals distort single-value CAGR.
Solution: Use IRR or time-weighted return measures for portfolios with cash flows.
FAQs
Q: Can I enter months?
A: Yes, enter years and months to increase precision.
Q: Does this account for dividends or other cash flows?
A: No. For multiple cash flows use IRR or TWR tools.
Q: Is CAGR the same as average return?
A: No, CAGR is geometric annualized rate and differs from arithmetic average.
Please do not enter any spam link in the comment box.