How to Calculate Compound Annual Growth Rate (CAGR)
Our CAGR calculator helps you determine the annualized growth rate of an investment over a specified period. CAGR smooths out the volatility of year-over-year returns to give you a single, easy-to-understand growth rate.
Understanding CAGR
CAGR (Compound Annual Growth Rate) represents the rate at which an investment would have grown if it had grown at the same rate every year. It's one of the most widely used metrics for evaluating investment performance because it accounts for compounding and provides a meaningful comparison between different investments.
CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1, where n is the number of years.
Example:
An investment grows from $10,000 to $25,000 over 8 years: CAGR = (25000/10000)^(1/8) − 1 = 12.13%. This means the investment grew at an average of 12.13% per year.
Common Use Cases
Real-world applications for this calculator
Investment Performance
Evaluate the annualized return of stocks, mutual funds, ETFs, or any investment portfolio over time.
Business Growth
Measure revenue, profit, or customer growth rates for business planning and investor presentations.
Comparing Investments
Compare the performance of different investments that may have had different holding periods.
Tips
- CAGR is ideal for comparing investments over different time periods.
- Always consider risk alongside CAGR — higher CAGR often means higher volatility.
- Use CAGR for periods of at least 3-5 years for meaningful results.
- Compare CAGR against inflation to understand real (inflation-adjusted) returns.
Frequently Asked Questions
What is CAGR?
CAGR (Compound Annual Growth Rate) is the annualized average rate of return for an investment over a given period longer than one year. It tells you what constant annual return would produce the same final result.
How is CAGR different from average annual return?
A simple average return adds up each year's return and divides by the number of years. CAGR accounts for compounding. For volatile investments, CAGR is usually lower than the arithmetic average and gives a more realistic picture of actual growth.
What is a good CAGR?
It depends on the asset class. The S&P 500 has historically returned about 10% CAGR. Bonds typically return 2-5%. Real estate appreciation averages 3-5%. A "good" CAGR should exceed inflation (about 2-3%) to generate real returns.
What are the limitations of CAGR?
CAGR doesn't reflect investment risk or volatility. Two investments can have the same CAGR but vastly different risk profiles. It also doesn't account for cash flows like additional contributions or withdrawals during the period.
Can CAGR be negative?
Yes. If the ending value is less than the beginning value, the CAGR will be negative, indicating that the investment lost value on an annualized basis.