CAGR Calculator
Calculate the Compound Annual Growth Rate of your investment.
Understanding CAGR
What is CAGR?
Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
CAGR Formula
CAGR = (End Value / Start Value)^(1 / Years) - 1
Example: Investment of $10,000 grows to $20,000 in 5 years. CAGR = ($20,000/$10,000)^(1/5) - 1 = 14.87%. Note: simple average would be (100%/5) = 20%, but CAGR of 14.87% is the true annualized rate.
CAGR Use Cases
๐ Investment Performance
Compare fund returns across different time periods on an apples-to-apples basis.
๐ข Business Growth
Measure revenue, earnings, or user growth over multiple years.
Frequently Asked Questions
What is CAGR?
CAGR (Compound Annual Growth Rate) is the geometric mean growth rate of an investment over a specified period. It smooths out volatility to show the steady growth rate needed to go from initial to final value.
CAGR vs Simple Average?
Simple average ignores compounding. CAGR accounts for the compounding effect, giving a more accurate picture of long-term investment growth.
How to interpret CAGR?
A higher CAGR means faster growth. S&P 500 historical CAGR is ~10%. Compare your investment CAGR against benchmarks to evaluate performance.
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What is this tool?
CAGR (Compound Annual Growth Rate) measures the mean annual growth rate of an investment over a specified period longer than one year. It represents the smoothed annualized return, assuming the investment grew at a steady rate each year. The formula is CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years.
How to use
- 1
Enter beginning value
Input the initial value or starting amount of the investment.
- 2
Enter ending value
Input the final value at the end of the period.
- 3
Enter number of years
Input the time period length in years.
- 4
Review results
See CAGR percentage, total return, and comparison with simple average return.
Frequently Asked Questions
What is the difference between CAGR and average return?
Simple average return adds annual returns and divides by years, ignoring compounding. CAGR calculates the geometric mean, accounting for compounding. A -50% year followed by +100% has a simple average of +25%, but CAGR is 0% (you ended where you started).
Is a higher CAGR always better?
Not necessarily. CAGR smooths out volatility and does not reflect risk. Two investments with identical CAGR can have very different risk profiles. Always consider maximum drawdown, standard deviation, and Sharpe ratio alongside CAGR.
Can CAGR be negative?
Yes. When the ending value is less than the beginning value, CAGR is negative, indicating the investment lost value on an annualized basis over the period.