Compound Annual Growth Rate (CAGR) smooths an investment’s return into a single annualized number, making it easy to compare investments held over different time periods. Enter your beginning and ending values and the number of years to calculate it.
How It’s Calculated
CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Years) − 1, expressed as a percentage. Unlike a simple average of yearly returns, CAGR accounts for compounding, giving you the single steady annual rate that would take you from your beginning value to your ending value.
A Note on Assumptions
CAGR describes a smooth path between two points and hides any volatility that happened along the way — two investments with the same CAGR can have very different risk profiles. It also doesn’t account for additional contributions or withdrawals during the period.
Worked Example
Say your investment grew from $10,000 to $18,000 over 5 years. That’s an 80.00% total gain, but a 12.47% CAGR — the steady annual growth rate that would have taken you from $10,000 to $18,000 over those same 5 years.
FAQ
How is CAGR different from average annual return?
A simple average of yearly returns can be misleading because it ignores compounding and the order of gains and losses. CAGR instead calculates the single steady rate that would produce the same overall result, making it a more accurate way to compare investments over time.
Can I use CAGR to compare two different investments?
Yes — that’s one of its main uses. Since CAGR converts any holding period into an annualized rate, you can compare a stock held for 3 years with one held for 10 years.
What if my ending value is lower than my beginning value?
The calculator will return a negative CAGR, showing the annualized rate of decline.
Does CAGR account for volatility along the way?
No — it only looks at the beginning and ending values, not what happened in between. Two investments with the same CAGR can have very different risk profiles.