CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents the rate at which an investment would have grown if it had grown at the same rate every year, smoothing out the effects of volatility.

How do you calculate CAGR?

CAGR is calculated using the formula: CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years. For example, if you invested $10,000 and it grew to $18,000 over 5 years, the CAGR would be (18000/10000)^(1/5) - 1 = 12.47%.

What is the difference between CAGR and average return?

Average return is the arithmetic mean of periodic returns, while CAGR is the geometric mean that accounts for compounding. CAGR gives a more accurate picture of actual investment growth because it reflects the compounding effect. Average return can overstate performance when returns vary significantly year to year.

How do I calculate CAGR in Excel?

In Excel, use the formula: =((End_Value/Start_Value)^(1/Years))-1. For example, if A1 contains your starting value ($10,000), B1 contains your ending value ($18,000), and C1 contains the years (5), enter: =((B1/A1)^(1/C1))-1. Format the result as a percentage.

Can CAGR be negative?

Yes, CAGR can be negative when the ending value is less than the beginning value, indicating your investment lost money over the period. For example, if you invested $10,000 and it's now worth $8,000 after 3 years, the CAGR would be approximately -7.17%.

What are the limitations of CAGR?

CAGR has several limitations: (1) It ignores volatility and risk, showing only the smoothed growth rate. (2) It doesn't account for interim cash flows like deposits or withdrawals. (3) It can be misleading for short time periods. (4) It assumes reinvestment of all returns. For a complete picture, consider using CAGR alongside other metrics like standard deviation or Sharpe ratio.

How is CAGR different from IRR?

CAGR measures growth between two points (beginning and ending values) assuming no interim cash flows. IRR (Internal Rate of Return) accounts for multiple cash flows at different times, making it more suitable for investments with regular contributions or withdrawals. Use CAGR for simple investments and IRR for complex cash flow scenarios.

Why do investors use CAGR?

Investors use CAGR because it: (1) Provides a standardized way to compare investments with different time horizons. (2) Smooths out year-to-year volatility to show the underlying growth trend. (3) Reflects the actual compound growth experience. (4) Makes it easy to compare against benchmarks like S&P 500 returns. (5) Is widely understood and reported by financial institutions.

Can I use CAGR for any time period?

While CAGR can technically be calculated for any period, it's most meaningful for periods of at least 3-5 years. Short periods may give misleading results due to volatility. For periods under one year, simple return percentage is more appropriate. The longer the time period, the more reliable CAGR becomes as a performance measure.

CAGR Calculator

Calculate compound annual growth rate to measure investment performance

Calculate Your CAGR

Initial Value ($)

Final Value ($)

Number of Years

Compound Annual Growth Rate (CAGR)

12.47%

80.00%

Total Return

$8,000

Absolute Gain

1.80x

Growth Multiple

5.9 yrs

Doubling Time

Investment Growth Over Time

Year	Value	Year Growth	Cumulative Return

What is CAGR?

CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified time period longer than one year. Unlike simple average returns, CAGR accounts for the compounding effect—the way gains build upon previous gains.

Think of CAGR as the "smoothed" annual return that would get you from point A to point B. If you invested $10,000 and it grew to $18,000 over 5 years, the CAGR tells you the equivalent steady annual return (12.47%) that would produce the same result.

How to Calculate CAGR

The CAGR formula is:

CAGR = (EndingValue / StartingValue)^(1 / Years) - 1

Where:

Ending Value = Final value of your investment
Starting Value = Initial investment amount
Years = Number of years in the investment period

Example CAGR Calculation

Scenario: You invested $10,000 five years ago. Today it's worth $18,000. What's your CAGR?

CAGR = (18,000 / 10,000)^(1 / 5) - 1
CAGR = (1.8)^(0.2) - 1
CAGR = 1.1247 - 1
CAGR = 0.1247 = 12.47%

Result: Your investment grew at an average compound rate of 12.47% per year.

CAGR Formula in Excel

To calculate CAGR in Microsoft Excel or Google Sheets, use this formula:

=((EndValue/StartValue)^(1/Years))-1

Example with cell references:

	A	B	C	D
1	Start Value	End Value	Years	CAGR
2	$10,000	$18,000	5	`=((B2/A2)^(1/C2))-1`

Format cell D2 as a percentage to display the result as 12.47% instead of 0.1247.

CAGR vs. Average Return

Understanding the difference between CAGR and average (arithmetic mean) return is crucial for evaluating investments accurately:

Metric	CAGR (Geometric Mean)	Average Return (Arithmetic Mean)
Calculation	Accounts for compounding	Simple average of annual returns
Accuracy	Shows actual growth experienced	Can overstate performance
Volatility Impact	Reflects volatility drag	Ignores volatility effects
Best For	Measuring actual investment results	Estimating expected future returns

Example of why it matters:

Year 1: +50% | Year 2: -50%

Average Return: (50% + -50%) / 2 = 0%
CAGR: $100 → $150 → $75 over 2 years = -13.4%

The average return suggests break-even, but you actually lost 25% of your money!

Limitations of CAGR

While CAGR is a powerful metric, be aware of its limitations:

Ignores Volatility

CAGR shows the smoothed growth rate but hides the bumpy ride. Two investments with the same CAGR can have vastly different risk profiles.

No Interim Cash Flows

CAGR assumes no deposits or withdrawals during the period. For portfolios with regular contributions, use IRR (Internal Rate of Return) instead.

Misleading for Short Periods

CAGR is most meaningful over 3+ years. Short-term CAGR can be skewed by temporary market conditions and may not reflect true performance.

Assumes Reinvestment

CAGR assumes all dividends and gains are reinvested. If you took distributions, your actual experience differs from the calculated CAGR.

What is a Good CAGR?

Context matters when evaluating CAGR. Here are historical benchmarks for reference:

Investment Type	Historical CAGR (Approximate)	Risk Level
S&P 500 (Long-term)	~10%	Medium
US Bonds (Long-term)	~5%	Low
Real Estate (Long-term)	~8-10%	Medium
Growth Stocks	~12-15%+	High
Savings Account	~1-4%	Very Low

Past performance doesn't guarantee future results. These are historical averages and actual returns vary significantly.

Frequently Asked Questions

CAGR (Compound Annual Growth Rate) measures the mean annual growth rate of an investment, smoothing out volatility to show the equivalent steady return. It matters because it allows you to compare investments with different time horizons and provides a realistic picture of compounded growth.

Use the formula: CAGR = (Ending Value / Beginning Value)^(1/n) - 1. For example, $10,000 growing to $18,000 over 5 years: (18000/10000)^(1/5) - 1 = 12.47%. You can also use our calculator above for instant results.

Average return is the arithmetic mean of annual returns, while CAGR is the geometric mean that accounts for compounding. CAGR shows your actual growth experience, while average return can overstate performance, especially with volatile investments.

Yes, CAGR is negative when your ending value is less than your starting value, indicating your investment lost money. For example, $10,000 declining to $8,000 over 3 years results in a CAGR of approximately -7.17%.

The S&P 500 has historically averaged about 10% CAGR over long periods. A CAGR above 15% is generally excellent, 10-15% is good, and 7-10% is average. However, higher returns usually come with higher risk.

In Excel, use: =((End_Value/Start_Value)^(1/Years))-1. If A1=$10,000, B1=$18,000, C1=5, enter =((B1/A1)^(1/C1))-1 in D1. Format as percentage to see 12.47% instead of 0.1247.

The Rule of 72 is a quick way to estimate doubling time: divide 72 by your CAGR to get approximate years to double. For example, at 12% CAGR, your investment doubles in roughly 72/12 = 6 years. Our calculator shows the exact doubling time.

Brokers often report time-weighted or money-weighted returns that account for deposits and withdrawals. CAGR only considers starting and ending values. If you added or withdrew money during the period, use your broker's return or calculate IRR instead.

Yes, CAGR is ideal for comparing investments with different time horizons because it standardizes returns to an annual basis. Just remember that CAGR doesn't account for risk—consider volatility metrics alongside CAGR for complete analysis.

CAGR measures growth between two points assuming no interim cash flows. IRR (Internal Rate of Return) accounts for multiple cash flows at different times. Use CAGR for simple lump-sum investments; use IRR for portfolios with regular contributions or withdrawals.

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Our DDM Calculator uses dividend growth rate to find intrinsic stock value using the Gordon Growth Model.

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Disclaimer: This calculator is for educational purposes only. CAGR is a historical measure and past performance does not guarantee future results. Always consider multiple metrics including risk measures when evaluating investments. Consult a financial advisor for personalized advice.

CAGR Calculator

Calculate Your CAGR

Investment Growth Over Time

What is CAGR?

How to Calculate CAGR

Example CAGR Calculation

CAGR Formula in Excel

CAGR vs. Average Return

Limitations of CAGR

Ignores Volatility

No Interim Cash Flows

Misleading for Short Periods

Assumes Reinvestment

What is a Good CAGR?

Frequently Asked Questions

What is CAGR and why does it matter?

How do I calculate CAGR manually?

What's the difference between CAGR and average return?

Can CAGR be negative?

What is a good CAGR for stock investments?

How do I calculate CAGR in Excel?

What is the Rule of 72 and how does it relate to CAGR?

Why is my CAGR different from my broker's reported return?

Can I use CAGR to compare different investments?

What's the difference between CAGR and IRR?

Use growth rate for stock valuation?

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