Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. The offers that appear in this table are from partnerships from which Investopedia receives compensation. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. It is inaccurate to say the annualized return is 12.5 percent, or 50 percent divided by four because this does not take into effect compound interest. All rights reserved. In this post we will explore the correct way to convert growth rates for all periods. How can I calculate the percentage of population change in the decade? Returns on investments are uneven over time, except bonds that are held to maturity, deposits, and similar investments. Determine the time period you want to calculate. Thank you so much! Assume that at the end of the five-year period, the savings account’s balance is $10,510.10 and, although the other investment has grown unevenly, the ending balance in the stock fund was $15,348.52. The inflation-adjusted return is a measure that accounts for the return period's inflation rate. Investors can compare the CAGR of two alternatives in order to evaluate how well one stock performed against other stocks in a peer group or against a market index. On the other hand, one of the drawbacks to CAGR is that by smoothing the returns, CAGR cannot tell an investor how volatile or risky the stock fund was. On Jan 1, 2017, the portfolio ended with $19,000 (or 35.71% from Jan 2016 to Jan 2017). {"smallUrl":"https:\/\/www.wikihow.com\/images\/thumb\/7\/7a\/Calculate-an-Annual-Percentage-Growth-Rate-Step-1-Version-6.jpg\/v4-460px-Calculate-an-Annual-Percentage-Growth-Rate-Step-1-Version-6.jpg","bigUrl":"\/images\/thumb\/7\/7a\/Calculate-an-Annual-Percentage-Growth-Rate-Step-1-Version-6.jpg\/aid1517950-v4-728px-Calculate-an-Annual-Percentage-Growth-Rate-Step-1-Version-6.jpg","smallWidth":460,"smallHeight":345,"bigWidth":"728","bigHeight":"546","licensing":"

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