Ever wanted to know how much your investment has grown on average over the years? Or
perhaps you are considering a specific investment but not sure if it “performs”.
You may think that the obvious thing to do would be to fire up Google Finance and
having a look at a very pretty graph showing you that the growth for this investment over the
last 10 years was 150%. Awesome, right?! 150%/10 years is 15% per year which is a really
If only. No, unfortunately it is a bit more involved than that. The 150% over 10 years
you see is compound growth and the value you are looking for is quite a bit lower than
that… sorry 😦
So disappointments aside, how do you calculate annualised growth?
- Get the starting value of the investment for the period you have select. For ease of
the calculation we’ll use the cent value. So let’s assume a value of R10,00 which is 1000 cents.
- Now get the end value for the investment over the period. We’ll stick with our example and
use R25,00 which is 2500.
- Get the “year fractional value” (I made that up for a lack of a better name) which is basically
1 over the amount of years in this period: 1/[years]. So in this example of 10 years it will be 1/10 or 0.1
- Subtract the starting value from the end value and divide that by the starting value:
(2500 - 1000)/1000 = 1.5
- Now add 1 to the return rate (step 4) and raise it by the year fractional value (calculated in step 3) and subtract
1 from the result. That might sound confusing but it looks like this:
Simplified it reads:
Simplified some more:
And the result:
0.0959 (your annualised growth percentage).
- Now multiply the number by 100:
Let’s use real data – STX40 between 2 Jan 2004 and 30 Dec 2016 (13 years):
Year fraction: 1/13 =
(4382-960)/960 = 3.56
((3.56+1)^0.077)-1 = 0.1239
I know, it feels a bit like high school all over again. That’s why I made a calculator
for you to use. You’re welcome.