Investment Return Calculator
Total gain on an investment, and what it works out to per year.
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Formula
How the calculation works
Two numbers come out of one investment and they answer different questions. The total return is the whole gain as a share of what you put in: 10,000 growing to 15,200 gained 5,200, which is 52%. The annual figure is the steady rate that would produce the same result: 7.23% a year for six years. The total is what happened; the annual rate is what it is comparable to.
The annual figure is smaller than dividing 52 by six, which gives 8.67%. That is not a rounding difference, it is the whole point of compounding. Growth builds on previous growth, so a lower steady rate reaches the same end value. Dividing the total by the years overstates the rate every time, and the error grows with the period.
The same asymmetry works in reverse for losses. A 50% loss needs a 100% gain to recover, and the annual figures are far apart in a way the total hides. This is why comparing two investments by their total return is unreliable unless the holding periods match, and why the annual rate is the only figure that can be compared across different lengths.
Common mistakes
- Dividing the total return by the years. 52% over six years is 7.23% a year, not 8.67%.
- Comparing a total return against another investment's annual return, which compares a period against a rate.
- Leaving out costs, fees and tax. The gain here is gross of everything that came off along the way.
When to use it
- Use the annual figure to compare investments held for different lengths, and the total to see the money in absolute terms.
- It assumes no money was added or withdrawn during the period. A plan with monthly contributions needs a different calculation, and this will misread it.
Worked example
10,000 growing to 15,200 over six years gains 5,200, which is 52% in total and 7.23% a year.
Common questions
Why are the total gain and the annual rate different?
The total covers the whole period, the annual rate is per year. 52% over six years is not 52% a year, because the gain accumulated across six years. To compare two investments, use the annual figure.
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