⚠️ For educational purposes only. Not financial advice. Past performance does not guarantee future results.
How investment returns are measured
"Return" sounds simple, but there are at least three meanings investors should keep separate: total return, annualised return (CAGR), and real return. Each tells you something different.
- Total return: the total percentage change between purchase and current value, including dividends and interest. Useful for headline performance, useless for comparing investments held for different lengths of time.
- Annualised return / CAGR: the equivalent compound annual growth rate. This is the standard way to compare investments across different holding periods. Formula: CAGR = (Final ÷ Initial)1/years − 1.
- Real return: annualised return minus inflation. A 7% nominal return at 3% inflation is a 4% real return — what your purchasing power actually grew by.
A worked example
You bought a fund for $10,000. Five years later, with reinvested dividends, it's worth $14,693.
Total return: ($14,693 − $10,000) ÷ $10,000 = +46.9%
CAGR: (14,693 ÷ 10,000)1/5 − 1 = ~8.0% per year
Real return (assuming 2.5% avg inflation): ~5.5% per year
That same total return looks very different framed as 46.9% (impressive!), 8% per year (solid), or 5.5% real (closer to historical averages).
What's a "good" return?
It depends entirely on the asset class and time period. Some long-term historical benchmarks:
| Asset class | Long-term nominal CAGR | Real CAGR |
|---|
| US large-cap stocks (S&P 500) | ~10% | ~7% |
| Global stocks (MSCI World) | ~8% | ~5% |
| Investment-grade bonds | ~4–5% | ~1–2% |
| Real estate (residential) | ~5–6% | ~2–3% |
| Cash / savings accounts | ~2–4% | often negative |
These are averages over very long periods (30+ years). Any single 5- or 10-year stretch can look very different — equities have had decade-long flat periods historically.
Things this calculator doesn't account for
- Taxes on gains. Capital gains, dividend tax, and FIF rules in some countries (NZ) materially reduce after-tax returns.
- Fees. A 1% management fee compounds against you over decades. Always check the expense ratio.
- Currency effects. If you invest internationally, exchange rate movements can add or subtract several percentage points per year.
- Behaviour. The biggest gap between expected and actual returns is investor behaviour — selling at lows, buying at highs.