CAGR Calculator (Compound Annual Growth Rate)
Calculate the Compound Annual Growth Rate of your investments
Calculate Your CAGR
Measure the mean annual growth rate of your investment over time
What is CAGR?
CAGR (Compound Annual Growth Rate) is the rate of return that would be required for an investment to grow from its initial value to its final value, assuming profits were reinvested at the end of each period. It smooths out returns over time to show an average annual growth rate.
Formula
CAGR = [(Final Value ÷ Initial Value)^(1 ÷ Years) - 1] × 100
Why Use CAGR?
- Compare performance of different investments over varying time periods
- Account for compounding effects in your returns
- Smooth out volatility to see true long-term performance
- Set realistic expectations for future growth
CAGR vs. Average Return
Unlike simple average returns, CAGR accounts for the compounding effect of returns over time. This makes it more accurate for measuring investment performance, especially for volatile assets like stocks.
Example
If you invested $10,000 and it grew to $25,000 over 5 years, your CAGR would be approximately 20.11% per year. This means your investment grew at an average annual rate of 20.11%, accounting for compounding.
When to Use CAGR
CAGR is your go-to metric when comparing investment performance across different time periods. Unlike simple averages, CAGR accounts for the compounding effect of returns, giving you a more accurate picture of how your money actually grew.
Use CAGR to evaluate mutual funds, stock portfolios, business revenue growth, or any investment that compounds over time. It's particularly valuable when comparing investments with different starting and ending dates.
Real-World Applications
Investment professionals rely on CAGR daily. Portfolio managers compare fund performance using CAGR. Financial advisors use it to set realistic client expectations. Stock analysts calculate historical CAGR to project future growth.
For individual investors, CAGR helps you understand if your returns beat inflation and market benchmarks. If the S&P 500 returned 10% CAGR over the past decade, and your portfolio only achieved 7%, you know you underperformed the market.
CAGR Limitations
CAGR assumes smooth, steady growth - but real investments fluctuate. A stock might crash 50% one year and soar 100% the next, yet show the same CAGR as steady 10% annual growth. This is why you should always review volatility alongside CAGR.
CAGR also ignores cash flows during the period. If you added money each year, CAGR won't accurately reflect your true returns. For investments with regular contributions, use our Average Cost Calculator or Compound Interest Calculator instead.
Frequently Asked Questions
What is CAGR and why is it important?
CAGR (Compound Annual Growth Rate) is the rate of return required for an investment to grow from its initial value to its final value, assuming profits were reinvested. It smooths out volatility to show average annual growth, making it essential for comparing investments over different time periods.
How is CAGR different from average return?
Unlike simple average returns, CAGR accounts for the compounding effect of returns over time. This makes it more accurate for measuring investment performance, especially for volatile assets like stocks.
When should I use CAGR?
Use CAGR to compare investment performance across different time periods, evaluate mutual funds, analyze business revenue growth, or any investment that compounds over time. It's particularly valuable for understanding long-term performance trends.