CAGR vs Total Return

Learn the difference between total growth and compound annual growth rate, and when each metric is useful.

4 min read

Total return

Total return measures the full percentage change from beginning value to ending value. If an investment grows from 100,000 to 180,000, the total return is 80%.

This is easy to understand, but it does not tell you how long the growth took.

CAGR

CAGR converts total growth into a smoothed annual growth rate. It answers: what steady annual compound rate would produce the same beginning-to-ending result?

The formula is CAGR = (Ending Value / Beginning Value) ^ (1 / Years) - 1.

Limitations

CAGR hides volatility. Two portfolios can have the same CAGR while one had much larger drawdowns along the way.

If there are deposits or withdrawals during the period, CAGR alone may not describe investor experience accurately.

Key takeaway

Use total return for the full change and CAGR for annualized comparison across different time periods.

Use the calculators

After reading this guide, you can return to the CompoundX calculators to compare your own assumptions. Results are estimates only and do not constitute investment advice.

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