Why use this calculator
A total return figure is nearly meaningless on its own, because it says nothing about how long the money was tied up. Sixty per cent over five years and sixty per cent over fifteen are entirely different investments, and quoting the total rather than the annualised figure is the standard way of making a mediocre result look impressive.
This calculator converts one into the other and, importantly, includes income. Dividends and distributions have historically made up a substantial share of long-run sharemarket returns, and leaving them out understates performance badly. It also lets you compare a property with rent against shares with dividends on the same basis, which headline price growth alone never allows.
How to use it
- Enter what you originally paid, ideally including brokerage so the return is net of costs.
- The current or sale value is what the holding is worth now, before selling costs if you have not sold.
- Years held accepts decimals, so a holding of eighteen months is 1.5.
- Income is the total of all dividends, distributions or rent received over the entire period, not per year.
- If you reinvested that income, the reinvested value is already reflected in the final value, so entering it again in the income field would double count.
What each result means
- Total return
- The dollar gain or loss including income. It says nothing about time, which is why the annualised figure matters more.
- Total return percentage
- The gain as a percentage of what you invested, over the whole period.
- Annualised return
- The constant yearly rate that would produce the same result. This is the figure to compare against other investments and against benchmarks.
- Capital gain
- The change in the holding's price alone, excluding income. It can be negative while the total return is positive.
- Income received
- Dividends, distributions or rent collected over the period, which many people forget to count.
- Average income yield per year
- Income as an annual percentage of what you invested. The portion of return that arrived as cash.
- Value if held at the same rate for 10 more years
- An illustration of what continuing at the same annualised rate would produce. Past performance does not guarantee it.
The formula
Total return is (final value + income − initial) ÷ initial × 100. Annualised return, the compound annual growth rate, is [(final value + income) ÷ initial]^(1/years) − 1, expressed as a percentage. The annualised figure is always lower than the simple average of yearly returns whenever those returns vary, because compounding penalises volatility.
How this number is used in practice
Compare like with like. An annualised return is only meaningful against a benchmark over the same period. A 9% annual return is excellent in a decade when the market returned 5% and disappointing in one when it returned 14%. Without the comparison, the number is just a number.
Income is the part most often omitted. Dividends have accounted for a substantial share of long-run total returns, and reinvesting them rather than spending them is what separates a good result from a large one. If you have reinvested, do not also enter the income separately or you will count it twice.
The figure to judge is real return, after inflation. A 7% return in a year of 3% inflation increased your purchasing power by about 4%. Over decades that distinction compounds into the difference between a plan that works and one that quietly does not.
Worked examples
$10,000 grown to $15,000 over 5 years with $1,000 of dividends
Total return $6,000 or 60%, but an annualised return of 9.86%. The figure that allows comparison.
The same $6,000 gain earned over 15 years instead
Identical total return, but the annualised figure falls to about 3.2%. A very different investment.
$50,000 property investment worth $48,000 after 3 years with $12,000 of rent
A capital loss of $2,000 but a positive total return of $10,000, because income more than covered the price fall.
When people use it
- Comparing investments held for different lengths of time
- Checking a holding's performance against a market benchmark
- Working out the true return on a property including rent
- Evaluating whether an active fund justified its fees
- Separating capital growth from income in a total return
Tips
- Always compare annualised returns, never total returns, when holding periods differ.
- Include dividends and distributions. Leaving them out understates long-run sharemarket returns substantially.
- If you reinvested income, it is already in the final value. Entering it again double counts the return.
- Subtract inflation to get the real return, which is what actually increases your purchasing power.
- Compare against a benchmark over the same period. A return without context tells you nothing about skill.
- Include brokerage and selling costs in the figures for a true net return, particularly on smaller parcels.
What it assumes, and where it stops being accurate
- A single purchase and a single valuation date. Additional purchases over time require a money-weighted return instead.
- Income is treated as received but not reinvested unless it is already reflected in the final value.
- Tax on income and on capital gains is not deducted.
- Brokerage and other transaction costs are excluded unless you build them into the figures.
- Inflation is not applied, so the result is a nominal return.
Terms used on this page
- Annualised return (CAGR)
- The constant annual rate that would take an investment from its starting value to its ending value.
- Total return
- The full gain including both price change and income received.
- Capital gain
- The change in price alone, excluding any income.
- Real return
- Return after inflation. The increase in actual purchasing power.
Questions people ask
- What is the difference between total and annualised return?
- Total return is the whole gain over the entire period. Annualised return is the constant yearly rate that would produce the same result, accounting for compounding. A 60% total return over five years is 9.86% a year; over fifteen years the same 60% is only 3.2% a year.
- What is CAGR?
- Compound annual growth rate. The same thing as annualised return. It answers the question: what steady annual rate would have taken the investment from its starting value to its ending value over this period? It is the standard basis for comparing investments.
- Should I include dividends in my return?
- Yes. Dividends and distributions have historically accounted for a substantial share of long-run sharemarket returns, and a price-only figure understates performance. The one caution is double counting: if you reinvested the income, it already sits inside the final value.
- Why is my annualised return lower than my average yearly return?
- Because compounding penalises volatility. Gain 50% then lose 50% and the simple average is zero, but $100 has become $75. The annualised figure reflects what actually happened to the money, which is why it is always at or below the arithmetic average when returns vary.
- Is a 10% return good?
- It depends entirely on the period and the benchmark. Broad sharemarket indices have averaged roughly 9-10% a year before inflation over long periods, so 10% is around market. In a year the market returned 20%, it is poor; in one it fell 10%, it is excellent. Context is the whole answer.
Use this with
Investment Return Calculator answers one part of the question. These pick up where it stops: Compound Interest Calculator, Dividend Yield Calculator, ROI Calculator and DRIP Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- ASIC Moneysmart: how to invest. Independent guidance on returns, risk and fees
- Reserve Bank of Australia: indicator lending rates. Published lending and deposit rates
Investment Return Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.