CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified time period longer than one year. It smooths out volatility to show the consistent rate that would produce the same result.

How is CAGR different from average return?

Average return is the arithmetic mean of yearly returns. CAGR is the geometric mean that accounts for compounding. CAGR is more accurate for multi-year investments because it considers that returns compound.

S&P 500 historically has ~10% CAGR. >15% is excellent, 10-15% is good, 5-10% is moderate. Compare to benchmarks and consider risk. Higher CAGR often means higher risk.

Can CAGR be negative?

Yes, if your ending value is less than beginning value, CAGR will be negative, indicating an average annual decline in value.

CAGR Calculator

Calculate the Compound Annual Growth Rate to measure annualized investment returns over time.

Calculator

Result

Beginning Value: -
Ending Value: -
Time Period: -
Total Return: -
CAGR: -

Formula & Guide

Formula

%

CAGR Formula

CAGR = (EV/BV)^(1/n) - 1

Compound Annual Growth Rate

Formula Variables

EV

Ending Value

Final value of investment

BV

Beginning Value

Initial value of investment

n

Years

Number of years

Step-by-Step Scenario

Example: Portfolio Growth

Initial

$50,000

Final

$85,000

Period

5 years

1

Calculate Ratio

Ratio = $85,000 / $50,000 = 1.70

2

Apply Formula

CAGR = 1.70^(1/5) - 1 = 1.112 - 1 = 0.112

3

Convert to Percentage

CAGR = 11.2% per year

Additional Examples

10-Year Investment

Begin: $100,000

End: $259,374

Years: 10

CAGR

10.0%

Fund Performance

Begin: $10,000

End: $8,500

Years: 2

CAGR

-7.8% (loss)

Characteristics of CAGR

Smooths Volatility

CAGR shows consistent growth rate, ignoring year-to-year fluctuations.

Time-Adjusted

Unlike simple ROI, CAGR accounts for investment duration.

Compare Investments

Use CAGR to compare investments with different time periods.

Realistic Expectations

CAGR helps set realistic expectations for future growth.

Important Notes

CAGR doesn't show volatility—two investments can have same CAGR with very different risk.
Use CAGR alongside other metrics like standard deviation for complete picture.
Historical CAGR doesn't guarantee future returns.
CAGR assumes reinvestment of all returns.

Frequently Asked Questions

Common questions about CAGR.