ROI & CAGR Calculator

Annualize it. A total gain tells you how much an investment made; only the annual rate lets you compare it with a bond yield, a fund's record or what you need your portfolio to earn. The calculator takes three inputs, what you put in, what you have now or received, and how long it took, and returns the total return, the compound annual growth rate (CAGR) and the real return after inflation.

With the defaults, $500,000 placed in a managed account twelve years ago is worth $1,150,000 today after fees. The total return is 130%. The CAGR is 7.19% a year, the real return at 3% inflation is 4.07%, and at that pace the money doubles about every ten years. The simple average, 130% divided by twelve, is 10.83%: a figure that flatters the result because it ignores compounding.

Most long-held positions in a retirement portfolio fit this shape: a rollover you have not added to, a block of company stock, an inherited account, a property bought for cash, an annuity bought with one premium. When money went in or came out along the way, the IRR calculator gives the right answer instead; more on that below.

You can only tell by measuring the net return and comparing it with what you would otherwise have held. A fee charged as a share of assets comes out every year, whether the year was good or bad, and it compounds against you the way returns compound for you.

To check your own account, take the value on a statement from several years ago and the value today, both after fees, and enter them with the exact number of years and months between the statements. Choose a stretch with no deposits or withdrawals. Then run the same dates for the alternative: the total return of a low-cost balanced fund, or of the mix of index funds you would have used. If the gap is larger than the fee, the adviser is adding return; if it is smaller, you are paying for other things.

Those other things can be worth paying for. Planning Roth conversions before required minimum distributions, choosing which account to draw from each year, coordinating an estate plan, or keeping a nervous investor from selling at the bottom can each be worth more than 1% a year to the right household. The point is to know what you are buying. The guide to choosing a financial adviser covers fee structures and the questions to ask.

Enough real return to carry your withdrawals for the rest of your life, which is a lower bar than most marketing implies and a higher one than cash can clear. Once you are drawing from the portfolio, what matters is the return after inflation, because your spending rises with prices while a nominal balance does not.

That is why the calculator puts the real return beside the CAGR. A certificate of deposit that paid 4% while inflation ran at 3% earned about 1% in purchasing power, before tax. A stock fund that earned 7.19% in the same conditions earned about 4.07%. The retirement withdrawal calculator shows how different real returns change the life of a portfolio at a given withdrawal rate, and how much you need to retire works through the full calculation.

A higher return is not automatically better for a retiree. The order in which returns arrive matters once you are withdrawing: a fall early in retirement, while you are selling to pay bills, does more lasting damage than the same fall later. A holding with a slightly lower but steadier return may serve a plan better than one that averages more with deeper declines. Use the return figure as one input, not the verdict.

They reduce the ending value you keep, so an after-tax return is the fair comparison for anything held in a taxable account. Run the calculator twice: once with the sale proceeds, once with the proceeds minus the expected tax. Several federal rules decide how large that tax is:

• Long-term capital gains on assets held more than a year are taxed at 0%, 15% or 20%, depending on taxable income (IRS).
• Depreciation on a rental comes back at the sale: the unrecaptured section 1250 gain is taxed at a maximum rate of 25% (IRS).
• The net investment income tax adds 3.8% on investment income above $200,000 of modified adjusted gross income for single filers and $250,000 for married couples filing jointly (IRS). A large one-time gain can push you over the line in the year of sale.
• Your main home is treated differently: up to $250,000 of gain, or $500,000 on a joint return, can be excluded if you owned and lived in it for at least two of the five years before the sale (IRS). A rental you never lived in does not qualify.

A large realized gain also raises your income for the year, which can increase the taxable share of Social Security and, two years later, Medicare premiums through the income-related surcharge; the Medicare and IRMAA guide explains the brackets. Spreading sales over more than one tax year, or selling in a year when other income is low, can keep more of the return.

Whenever money moved in or out between the start and the end. ROI and CAGR assume one sum invested on the first day and one value on the last. Real accounts in retirement rarely look like that: required minimum distributions come out every year, dividends are taken as income, a rental pays monthly, and a portfolio built while working had contributions every payday.

Treating those flows as if they all happened at the end gives the wrong rate. In the Example tab, the rent a couple collected over fourteen years is added to the sale proceeds, which gives a CAGR of 5.45%. Entered as yearly cash flows with the IRR & XIRR calculator, the same money earns about 6.3% a year, because rent received early was worth more than rent received at the sale. For an account with withdrawals, the error runs the other way if the withdrawals are simply ignored: the ending balance looks too small and the return too low.

Brokerage statements often report a personal rate of return that is already money-weighted. If yours does, compare it with the fund's published return for the same period; the difference shows whether the timing of your additions and withdrawals helped or hurt.

By the value you could actually walk away with, not the figure that grows on paper. For a deferred annuity bought with one premium, enter the premium as the starting value and the current surrender value, after any surrender charge, as the ending value. Some products credit a separate "income base" used only to calculate lifetime payments; it is not cash you can take, so it does not belong in a return calculation.

For an income annuity that pays for life, a single ending value does not exist; the return depends on how long you live. The annuity payout calculator handles that comparison. The same net-value rule applies to whole life insurance cash values and structured products: use what you would receive if you ended the contract today.

• Risk. Two investments with the same CAGR can have taken very different paths. The calculator sees only the start and the end.
• Cash flows in between. Use the IRR calculator when money was added or withdrawn.
• Taxes and fees, unless you build them into the values you enter.
• Actual benchmark returns. The comparison rows use assumed round rates of 4%, 5% and 10%. For an exact comparison, look up a fund's total return over your dates.
• Your time. A rental or a concentrated position that needed attention for years may be worth less to you than its return suggests.

Figures on this page are illustrations for hypothetical households, not advice for your situation.