CAGR Calculator
Calculate the Compound Annual Growth Rate of an investment over time.
What is CAGR?
Compound Annual Growth Rate (CAGR) is the average annual growth rate of an investment over a specified period, assuming profits are reinvested each year. Unlike a simple average of yearly returns, CAGR smooths out volatility to show what steady annual growth rate would have produced the same overall result, making it one of the most widely used metrics for comparing investment performance across different time periods and asset types.
How is CAGR calculated?
The formula is CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1, expressed as a percentage. For example, if an investment grows from $10,000 to $25,000 over 5 years, the CAGR is approximately 20.11% per year — meaning if the investment had grown at exactly that rate every single year, compounding annually, it would have reached the same $25,000 ending value.
Why use CAGR instead of average annual return?
A simple average of yearly percentage returns can be misleading because it doesn't account for compounding and can be distorted by a single extreme year. CAGR instead reflects the real, compounded growth rate actually experienced, which is why it's the standard metric used to compare mutual funds, stocks, businesses revenue growth, or any investment where returns compound annually over multiple years.
Frequently Asked Questions
What does CAGR stand for?
CAGR stands for Compound Annual Growth Rate. It represents the smoothed, annualized rate of return an investment would need to grow at each year, with reinvestment, to go from its beginning value to its ending value.
What is the CAGR formula?
CAGR = (Ending Value ÷ Beginning Value) raised to the power of (1 ÷ Number of Years), minus 1, then multiplied by 100 to express it as a percentage.
Is CAGR the same as annual return?
Not exactly. CAGR is a smoothed, compounded average, while actual annual returns can vary significantly year to year. CAGR shows what constant rate would have produced the same overall growth, not the actual path taken.
Can CAGR be negative?
Yes, if the ending value is lower than the beginning value, CAGR will be negative, reflecting an average annual decline in value over the period measured.
What's a good CAGR for stock investments?
Historically, the broad US stock market has returned roughly 7-10% CAGR over long periods including reinvested dividends. A CAGR notably above that range for an extended period is considered strong outperformance.
Does CAGR account for volatility along the way?
No, CAGR only looks at the beginning and ending values, ignoring the ups and downs in between. Two investments with identical CAGR could have had very different (and very different risk) paths to get there.
Can I use CAGR for periods shorter than a year?
CAGR is designed for multi-year comparisons, but the formula works mathematically with fractional years (e.g. 0.5 for six months), though the result should be interpreted carefully since short periods can produce extreme annualized figures.
Is CAGR useful for comparing different investments?
Yes, CAGR is one of the best tools for apples-to-apples comparison between investments held for different time periods, since it standardizes growth into an annualized rate rather than a raw total percentage.