Annualised Return Calculator
The annualised return (also called CAGR — Compound Annual Growth Rate) tells you the equivalent yearly rate of return that would take an investment from its initial to its final value over a given period. It smooths out volatility for easy comparison.
Calculate annualised return
FV = Final value | PV = Initial value | n = Years
Related: ROI Calculator · CAGR
How the Annualised Return Calculator works
The annualised return (also called CAGR — Compound Annual Growth Rate) converts the total growth of an investment into an equivalent constant annual rate. This makes it straightforward to compare investments held for different durations on a like-for-like basis. The formula is (Final Value / Initial Value) raised to the power of 1/n, minus 1, where n is the number of years.
For UK investors, annualised return is particularly valuable when assessing ISA portfolios, pension funds, or property investments over multi-year periods. The FTSE All-Share has historically delivered annualised total returns of around 7–9% over the long run, providing a useful benchmark. Bear in mind that past performance does not guarantee future results, and real returns — after adjusting for inflation — are the most meaningful measure of genuine wealth growth.
Frequently asked questions
What is an annualised return?
An annualised return is the equivalent constant annual rate that would take an investment from its initial value to its final value over a given period. It is calculated using the CAGR formula: (Final Value / Initial Value) raised to the power of 1 divided by the number of years, minus 1. It smooths out year-to-year volatility into a single comparable figure.
Why is annualised return more useful than total return?
Total return tells you how much an investment grew overall, but it does not account for how long that took. A 100% total return over 20 years is much less impressive than the same return over 5 years. Annualised return puts returns on a like-for-like basis, so you can fairly compare investments held for different lengths of time.
What is a good annualised return for a UK investor?
The FTSE All-Share has historically delivered annualised returns of roughly 7–9% per year over the long run including dividends, though this varies by period. UK savings accounts and cash ISAs typically offer much lower rates, often below 5%. A 'good' annualised return depends on your asset class, risk tolerance, and time horizon. Real returns (after inflation) are the most meaningful benchmark.
How does annualised return differ from CAGR?
Annualised return and CAGR are mathematically identical when applied to a single lump-sum investment between two points in time. Both use the same formula: (End Value / Start Value)^(1/years) - 1. The term CAGR is more commonly used in a business context (e.g. revenue growth), while annualised return is more common in an investment context, but the calculation is the same.