Calculate total return, CAGR, and annualized performance of any investment.
CAGR is the annualized rate of return that smooths out the volatility of an investment over a specific period. It tells you the single growth rate that would take your initial investment to its final value, assuming all gains were reinvested. CAGR is the standard way to compare investments of different durations.
The S&P 500 has delivered approximately 10% CAGR over the long term (1926 to present) before inflation, or about 7% after inflation. Bonds have historically returned 5-6% nominal. Cash/savings accounts have returned 3-4% nominal. Real estate has averaged about 3-4% appreciation before rental income. These benchmarks help you evaluate whether your investments are performing well.
A quick mental math shortcut: divide 72 by your annual return percentage to estimate how many years it takes for your money to double. At 7% CAGR, money doubles in about 10.3 years. At 10%, in 7.2 years. At 4%, in 18 years. This works reasonably well for returns between 2% and 20%.
A 100% total return sounds impressive, but if it took 20 years, the CAGR is only 3.5%, which barely beats inflation. A 50% total return over 3 years is a CAGR of 14.5%, which is outstanding. Always convert to CAGR when comparing investments across different time periods.