Annualised Return

Annualised return allows comparing investments across different time horizons. Index Balance calculates it automatically for your portfolio from inception.

Definition

Annualised return (also known as CAGR, Compound Annual Growth Rate) is the constant rate of growth that, if applied year after year, would have produced the same final result as the actual investment. It allows comparing investments with different durations on a common basis and is the standard way to communicate the historical performance of a fund or index.

It should not be confused with the arithmetic average of annual returns. If a fund rises 50% one year and falls 33% the next, the arithmetic average is +8.5%, but the annualised return is 0% (because 1.5 × 0.67 = 1.005, essentially no gain). The geometric mean (CAGR) is always less than or equal to the arithmetic mean.

Index Balance shows the annualised return of your portfolio from inception, allowing you to compare directly with the historical performance of the MSCI World (~8-10% annually in EUR over the long term).

Practical example

You invest €5,000 and after 7 years you have €9,140. The total return is +82.8%. To calculate the annualised return: (9,140/5,000)^(1/7) - 1 = 1.0902 - 1 = 9.02% per year. This means that if you had grown at exactly 9.02% each year for 7 years, you would have reached the same result.