Why use CAGR instead of total return?
Total return ignores time. A 60% gain is excellent in three years and mediocre in fifteen; CAGR normalises both into an annual rate you can benchmark.
Turn a start value, end value and holding period into total return and compound annual growth rate so you can compare investments fairly.
Total return % = (end − start + income) ÷ start × 100. CAGR = (end ÷ start)^(1 ÷ years) − 1.
$10,000 growing to $18,000 over seven years is an 80% total return, but a CAGR of 8.8% — the number to compare against an index.
Total return ignores time. A 60% gain is excellent in three years and mediocre in fifteen; CAGR normalises both into an annual rate you can benchmark.
Only if you add them. Use total return (price change plus reinvested dividends and interest) as the ending value, otherwise you understate income-heavy holdings.
Volatility. Two investments can share a 9% CAGR while one moved smoothly and the other halved mid-way — check maximum drawdown alongside the average.