CAGR Calculator — Compound Annual Growth Rate
Calculate the Compound Annual Growth Rate (CAGR) of an investment. Enter the beginning and ending values along with the number of years to find the smoothed annual growth rate. See also ROI Calculator and Investment Calculator.
How to Calculate CAGR
CAGR (Compound Annual Growth Rate) represents the smoothed annual rate of return that an investment would have earned if it had grown at a steady rate. Unlike simple average returns, CAGR accounts for compounding and gives a single growth rate that takes you from the beginning value to the ending value over the specified period. It is widely used to compare the performance of investments, business revenue growth, and economic indicators over time.
CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1
Where:
Ending Value = final value of the investment
Beginning Value = initial value of the investment
n = number of years
Total Return:
Total Return = ((Ending − Beginning) / Beginning) × 100
Example Calculation
Beginning Value: $10,000
Ending Value: $25,000
Number of Years: 5
CAGR = (25,000 / 10,000)^(1/5) − 1
CAGR = (2.5)^(0.2) − 1
CAGR = 1.2011 − 1
CAGR = 20.11% per year
Total Return: 150% | Absolute Gain: $15,000
CAGR Reference Table
| Beginning | Ending | Years | CAGR | Total Return |
|---|---|---|---|---|
| $10,000 | $15,000 | 5 | 8.45% | 50% |
| $10,000 | $20,000 | 5 | 14.87% | 100% |
| $10,000 | $25,000 | 5 | 20.11% | 150% |
| $10,000 | $20,000 | 10 | 7.18% | 100% |
| $10,000 | $50,000 | 10 | 17.46% | 400% |
| $10,000 | $100,000 | 20 | 12.20% | 900% |
| $50,000 | $30,000 | 3 | -15.63% | -40% |
Frequently Asked Questions
What is the difference between CAGR and average annual return?
Average annual return is the arithmetic mean of yearly returns, while CAGR is the geometric mean. CAGR accounts for compounding and gives the actual rate needed to grow from the beginning to ending value. Average return can be misleading — an investment that gains 100% then loses 50% has a 25% average return but 0% CAGR (you end where you started).
Can CAGR be negative?
Yes. If the ending value is less than the beginning value, the CAGR will be negative, indicating the investment lost value over the period.
What is a good CAGR for investments?
The S&P 500 has historically delivered about 10% CAGR (7% after inflation). A CAGR above 15% is considered excellent for most investments. However, higher CAGR often comes with higher risk and volatility.
Does CAGR account for volatility?
No. CAGR smooths out all volatility and shows only the beginning-to-end growth rate. Two investments can have the same CAGR but very different risk profiles. Always consider volatility and maximum drawdown alongside CAGR.
Solved Examples
Example 1: Stock portfolio growth over 5 years
Solution:
Beginning Value = $50,000, Ending Value = $82,000, Time = 5 years
CAGR = (Ending/Beginning)^(1/n) - 1
CAGR = (82,000/50,000)^(1/5) - 1
CAGR = (1.64)^(0.2) - 1 = 1.1039 - 1 = 0.1039
Answer: CAGR = 10.39% per year. The portfolio grew at a steady 10.39% annually.
Example 2: Company revenue growth analysis
Solution:
Revenue 2019 = $2.4 million, Revenue 2024 = $5.8 million, Period = 5 years
CAGR = ($5.8M / $2.4M)^(1/5) - 1
CAGR = (2.4167)^(0.2) - 1 = 1.1932 - 1 = 0.1932
Answer: CAGR = 19.32%. The company grew revenue at 19.32% per year on average.
Example 3: Mutual fund performance over 10 years
Solution:
Initial investment = $100,000, Current value = $259,000, Time = 10 years
CAGR = ($259,000 / $100,000)^(1/10) - 1
CAGR = (2.59)^(0.1) - 1 = 1.0998 - 1 = 0.0998
Total return = ($259,000 - $100,000) / $100,000 = 159%
Answer: CAGR = 9.98%. Despite volatile individual years, the average compound growth was ~10%.
Practice Questions
Try these on your own:
- An investment grows from $20,000 to $35,000 in 4 years. What is the CAGR? (Answer: 15.02%)
- A company's earnings went from $1.5M to $4.2M over 7 years. Calculate the CAGR. (Answer: 15.87%)
- Your home was purchased for $300,000 and is now worth $420,000 after 6 years. What is the CAGR? (Answer: 5.77%)
- If a stock has a CAGR of 12%, how much will $10,000 grow to in 8 years? (Answer: $24,760)
- Two funds: Fund A grew from $10K to $25K in 8 years. Fund B grew from $10K to $22K in 6 years. Which has higher CAGR? (Answer: Fund B at 13.98% vs Fund A at 12.13%)
- GDP grew from $15 trillion to $21 trillion over 10 years. What is the CAGR? (Answer: 3.42%)
Common Mistakes to Avoid
The most critical mistake is assuming CAGR represents actual year-by-year growth. CAGR smooths volatility — an investment may have lost 20% one year and gained 40% the next, but CAGR only shows the average compound rate between the start and end points. Another error is using CAGR over very short periods (1-2 years) where it degenerates to a simple growth rate and loses its smoothing value. People also forget that CAGR ignores intermediate cash flows like dividends or withdrawals — it only considers beginning and ending values. When comparing CAGRs across different periods, remember that longer time horizons tend to moderate extreme values. Finally, CAGR doesn't account for risk — a volatile investment and a stable one could have the same CAGR but vastly different risk profiles.
Key Takeaways
- CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years.
- CAGR represents the smoothed annual growth rate, eliminating year-to-year volatility.
- It's ideal for comparing investments, revenue growth, or market performance over different periods.
- CAGR ignores interim volatility and cash flows — it only uses start and end values.
- The S&P 500 has historically returned a CAGR of about 10% over long periods (before inflation).
- Use CAGR alongside standard deviation or max drawdown to get a complete picture of investment performance.