Total return, CAGR, and the number that actually matters
“I doubled my money” feels great, but it doesn’t tell you whether that was a good investment — doubling in 3 years is spectacular, doubling in 30 is mediocre. The annualized return puts every investment on the same per-year footing. And once you’ve been adding money along the way, the usual final-over-initial shortcut quietly breaks.
Lump-sum CAGR
CAGR = (final ÷ initial)1/years − 1
This is exact for a single lump sum left to grow. But it assumesall your money was invested for the full horizon — which stops being true the moment you make regular contributions.
With contributions: money-weighted return (IRR)
When you add money over time, we solve for the annual rater that makes the present value of every cashflow balance:
initial + Σ contribution ÷ (1 + r)k = final ÷ (1 + r)years
Each contribution is discounted by how long it was actually invested, so a dollar added late counts for less than your opening lump sum. That single rate r is your true money-weighted return — the figure a basic ROI calculator simply can’t give you.
What makes this calculator different
- True money-weighted return (IRR). When you contribute regularly, a simple final-over-initial CAGR is wrong. We compute the IRR that accounts for the timing of every single contribution.
- Real, after-inflation return. We don’t stop at the nominal number — we show what your return is worth in today’s money.
- The full picture. Total gain, total return %, annualized return, and real return side by side, not just a single ROI figure.
- Lump sum or steady saver. Works whether you invested once or kept adding every year.
Frequently asked questions
What’s the difference between total return and CAGR?+
Total return is the simple money-on-money figure — how much you gained as a percentage of everything you put in, ignoring time. CAGR (compound annual growth rate) smooths that gain into a single annual rate, as if your money grew at the same steady pace every year. A 150% total return sounds huge, but over 10 years that’s only about 9.6% a year. CAGR is the right number for comparing investments of different lengths.
Money-weighted vs. time-weighted return — which is this?+
This calculator reports the money-weighted return (the internal rate of return, or IRR), which reflects the actual dollars you invested and when. Time-weighted return instead strips out the effect of deposits and withdrawals to isolate the manager’s or fund’s performance. Money-weighted is what you personally earned; time-weighted is how the strategy performed. For judging your own outcome, money-weighted is the honest number.
Why do regular contributions need IRR instead of a simple CAGR?+
A naive final-over-initial CAGR assumes every dollar was invested for the full period. But money you added in year 8 only had a couple of years to grow, while your initial lump sum had the whole horizon. Treating them the same overstates (or understates) your real annual return. IRR solves for the single annual rate that correctly discounts every contribution by how long it was actually invested — so it’s the only fair annualized figure once you’re adding money over time.
What is the real (after-inflation) return and why does it matter?+
Inflation erodes purchasing power, so a 9% return when prices rise 3% only makes you about 5.8% better off in real terms (the exact figure is (1 + nominal) ÷ (1 + inflation) − 1, not a simple subtraction). The real return is what actually grows your wealth in today’s money. Two investments with the same nominal return but different inflation backdrops are not equal — always check the real number.
What return should I expect from investing?+
Historically, a broad stock-market index has returned roughly 7–10% a year nominally over long periods, or about 5–7% after inflation — but with large swings year to year, and no guarantee the future matches the past. Bonds and cash typically return less. Use this calculator on your own holdings to see what you’ve actually earned rather than relying on averages.
Disclaimer: This calculator is for educational purposes only. Past performance does not guarantee future results, and returns depend on assumptions, taxes, and fees not fully modeled here. It is not financial or investment advice.