Investment Return Calculator

Frequently Asked Questions

What is ROI in investing?

ROI (Return on Investment) measures the profit or loss on an investment relative to its cost. It's calculated as (Final Value - Initial Investment) / Initial Investment × 100%.

What is CAGR and why is it important?

CAGR (Compound Annual Growth Rate) shows the average annual return of an investment over time, accounting for compounding. It's important because it allows you to compare investments of different durations on an equal footing.

What's considered a good investment return?

A good return depends on the asset class and risk level. Stock markets historically return 8-10% annually, bonds 3-5%, and balanced portfolios 6-8%. Any return above inflation (historically 2-3%) is positive real growth.

How do fees affect investment returns?

Investment fees (management fees, trading costs, taxes) reduce your net return. A 2% annual fee on a 7% return reduces your actual gain to 5%, which compounds significantly over time. Lower-cost index funds often outperform actively managed funds because of lower fees.

Should I focus on total return or annualized return?

Both are important. Total return shows absolute profit or loss. Annualized return (CAGR) is better for comparing investments of different time periods or measuring performance consistency over years.

Understanding Investment Returns

Measuring investment performance requires understanding both total return and annualized return. Total return shows the overall gain or loss, while annualized return (CAGR) shows the average yearly growth rate.

What is CAGR?

Compound Annual Growth Rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested at the end of each year. It provides a smoothed annual rate that accounts for the effects of compounding.

Total Return vs Annualized Return

• Total Return: The overall percentage gain or loss on your investment
• Annualized Return (CAGR): The average yearly return, accounting for compounding
• CAGR is more useful for comparing investments held for different time periods
• Total return shows the cumulative gain but doesn't reflect time value

Example Calculation

If you invested $10,000 and it grew to $15,000 over 5 years:

• Total Return: $5,000 or 50%
• CAGR: 8.45% per year

This means your investment grew by an average of 8.45% each year, with compounding effects included.

What's a Good Return?

Investment returns vary by asset class and market conditions. Historical benchmarks include:

• Stock Market: 8-10% annually (long-term average)
• Bonds: 3-5% annually
• Balanced Portfolio: 6-8% annually
• Savings Accounts: 1-3% annually