CAGR Calculator
Calculate the Compound Annual Growth Rate of your investment over time.
What is CAGR?
CAGR (Compound Annual Growth Rate) represents the mean annual growth rate of an investment over a specified time period longer than one year. It smooths out volatility to show a steady rate of return.
Where n = number of years. Unlike simple average returns, CAGR accounts for the compounding effect of reinvested gains.
CAGR vs Simple Average Return
Simple average return can be misleading. Consider an investment that goes from $100 to $200 (+100%) in year 1, then back to $100 (-50%) in year 2.
Simple Average: (100% + -50%) ÷ 2 = 25% per year
CAGR: ($100/$100)^(1/2) – 1 = 0% per year
CAGR correctly shows zero growth since you ended where you started. The simple average incorrectly suggests 25% annual growth.
Historical CAGR Benchmarks
Compare your investment’s CAGR against these historical benchmarks:
Using CAGR Effectively
- Compare similar investments: Use CAGR to compare stocks, funds, or portfolios over the same time period.
- Set realistic expectations: A 15%+ CAGR over 10+ years is exceptional; 7-10% is historically strong.
- Account for inflation: Subtract ~3% for “real” returns that reflect purchasing power.
- Consider the full picture: CAGR doesn’t show volatility or risk—two investments with the same CAGR can have very different risk profiles.
Limitations of CAGR
- Ignores volatility: A smooth 10% CAGR could mask wild swings of +50% and -30%.
- Assumes reinvestment: CAGR assumes all gains are reinvested, which may not reflect your actual strategy.
- Doesn’t include fees: Transaction costs, management fees, and taxes reduce real returns.
- Past ≠ Future: Historical CAGR doesn’t guarantee future performance.
- No cash flow consideration: CAGR doesn’t account for additional investments or withdrawals over time.
Frequently Asked Questions
What is the CAGR formula?
CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) − 1, expressed as a percentage. For example, an investment that grew from $10,000 to $18,000 in 6 years has a CAGR of (18,000/10,000)^(1/6) − 1 ≈ 10.3% per year.
What is the difference between CAGR and average annual return?
Average annual return adds up each year’s percentage gain and divides by the number of years, which overstates true performance if returns fluctuate. CAGR uses actual start and end values, so it captures compounding and gives the true equivalent steady-state growth rate. CAGR is always equal to or lower than the simple average when returns vary.
Can CAGR be negative?
Yes, if the ending value is less than the beginning value, the result of (End/Start)^(1/n) − 1 is negative, indicating the investment shrank at that annualized rate. The calculator will show a negative CAGR in this scenario.
What does the growth multiple tell me?
The growth multiple is simply Ending Value / Beginning Value — it shows how many times your money grew. A 2.5× multiple means your investment grew to 2.5 times the original amount, regardless of the time period. Combined with CAGR, it gives a full picture of both magnitude and speed of growth.
What is CAGR used for in practice?
CAGR is widely used to compare the performance of stocks, mutual funds, ETFs, real estate, and business revenue over multi-year periods. It strips out year-to-year volatility and enables apples-to-apples comparisons between investments of different lengths.