The Motley Fool Discussion Boards

Previous Page

Canadian Investing / Canada - Microcaps


Subject:  Re: fees Date:  11/23/1999  10:33 AM
Author:  mukluk Number:  708 of 3296

CAGR is the Compound Average Growth Rate, i.e. the rate at which a lump sum invested with no additions would have grown each year. Ann Coleman wrote a good Foolish Four column which gives an overview:

The easiest way to calculate CAGR is to convert each years percent return into a decimal (eg. 25.2% becomes 1.252 and -12.3% becomes 0.877, that is 1-0.123) and then to use the GEOMEAN function of Excel to calculate CAGR (you will have to subtract 1 from the result to get back to a percentage).

IRR or Internal Rate of Return represents the same concept but takes into account cash flows into and out of the account. This is calculated with the XIRR function of Excel. To calculate XIRR, set up two columns in your spreadsheet, the date of each cash deposit or withdrawal and the amount. The final row represents today's date and the current balance in the account expressed as a negative number, if you were withdrawing all the money in the account. Do not include dividends in your listing as they are part of the growth in the account, not new money added.

For example, say your started and account with $1,000 and added 3 further installments of $1,000. Today your account is worth $5,436.77. What is your average annual rate of return?

Date Deposit(Withdrawal)
January 1, 1998 $ 1,000.00
June 30, 1998 $ 1,000.00
January 1, 1999 $ 1,000.00
November 6, 1999 $ 1,000.00
November 22, 1999 $-5,436.77

XIRR = 0.31589238

Therefore the annual return on this account is 31.59%.


Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us