CAGR Calculator
Calculate the Compound Annual Growth Rate (CAGR) of an investment from its beginning and ending values.
What is CAGR?
CAGR (Compound Annual Growth Rate) tells you the steady annual rate of return that would take an investment from its starting value to its ending value over a specific period. It smooths out the volatility of year-to-year returns into one clean number, making it easy to compare different investments.
The formula is: CAGR = ((Ending Value / Beginning Value) ^ (1 / Years) - 1) x 100.
Frequently Asked Questions
What is the difference between CAGR and average annual return?
Average annual return simply adds up each year's return and divides by the number of years. CAGR accounts for compounding, giving you the actual growth rate that connects start to finish. An investment that gains 100% one year and loses 50% the next has a 25% simple average but a 0% CAGR.
How is CAGR calculated?
CAGR takes the ratio of the ending value to the beginning value, raises it to the power of 1 divided by the number of years, then subtracts 1. The result is the constant annual growth rate that would produce the same final value. It ignores what happened in the years between.
Is a higher CAGR always better?
A higher CAGR means faster growth, but it does not tell you about risk. An investment with 30% CAGR might have swung wildly each year, while one with 10% CAGR may have grown steadily. Always consider volatility and risk alongside the growth rate when evaluating investments.
What is CAGR used for?
CAGR is commonly used to compare the performance of investments, mutual funds, stocks, and business revenue over time. It gives a standardized annual growth figure that makes apples-to-apples comparison possible, even when the time periods or starting amounts differ.
Can I use CAGR to compare different investments?
Yes, that is one of its best uses. CAGR normalizes returns to a per-year basis so you can directly compare a 3-year investment with a 10-year one. Just remember it hides volatility, so two investments with the same CAGR could have very different risk profiles.
Can I use CAGR to set return expectations?
CAGR from past performance can give you a benchmark, but it does not predict future returns. Markets change, and historical growth rates may not continue. Use it as one input in your planning, not as a guarantee. It is most useful for understanding what has happened, not what will.
When is CAGR not useful?
CAGR is not useful when you need to understand year-by-year performance, risk, or cash flows. It hides the path between start and end, so two investments with the same CAGR could have vastly different journeys. It also does not account for additional contributions or withdrawals during the period.
How does inflation affect CAGR?
CAGR shows nominal growth unless you adjust for inflation yourself. To get the real (inflation-adjusted) CAGR, you can adjust your ending value for inflation before calculating, or subtract the average inflation rate from your nominal CAGR as a rough estimate. Real CAGR gives a truer picture of purchasing power growth.