How to Calculate Growth of Investment Formulas
Original post by Mark Kennan of Demand Media
When figuring the growth rate of your investment, you have to account for the effects of compound returns. Though you can simply calculate the overall growth rate for your investment by dividing the growth by the original investment, you are better off calculating the average annual growth rate because then you can compare investments you have held for different time periods. To figure the average annual growth rate with an investment formula, you have to know the original investment, ending value and the length of time you had the money invested.
Divide the ending value of your investment by the original investment amount. For example, if ten years ago you invested $1,800 and today the investment is worth $2,900, divide $2,900 by $1,800 to get 1.611111111111111.
Divide 1 by the number of years you held the investment. In this example, divide 1 by 10 to get 0.1.
Calculate the Step 1 result raised to the power of the Step 2 result with a scientific calculator. On the calculator, type in the Step 1 result, push the exponent key (typically a "^" or "x^y"), type in the power and press "Equals." When you press equals, the calculator displays the result. In this example, raise 1.611111111111111 to the 0.1th power to get 1.048847988.
Subtract 1 to find the annual rate of return. In this example, subtract 1 from 1.048847988 to get 0.048847988. This means that your investment averaged an annual growth rate of 4.88 percent.
- Standford University; CAGR (Compound Annual Growth Rate); Michael Fan; 2006
- University of Oregon; Calculating Growth Rates; Bob Parker; 2002
About the Author
Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.
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