CAGR Calculator - Compound Annual Growth Rate Calculator
Calculate the Compound Annual Growth Rate (CAGR) of your investments. Understand your average annual returns with our free CAGR calculator
CAGR Calculator
Results
How to Use This Calculator
Beginning Value
Enter the initial investment amount or starting value of your asset
Ending Value
Enter the final value of your investment after the specified period
Number of Years
Enter the investment period in years (can include decimals for partial years)
Calculate
Click the calculate button to determine the CAGR of your investment
Understanding CAGR (Compound Annual Growth Rate)
CAGR is a useful measure that represents the steady rate of return of an investment over a given time period. It describes the rate at which an investment would have grown if it had grown at a steady rate each year.
What is Compound Annual Growth Rate?
CAGR is the rate of return required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested.
If you're planning investments and want to see how compound interest affects your returns over time, our compound interest calculator can help you project future growth.
For those building savings, consider using our savings calculator to determine how much you need to save regularly to reach your financial goals.
To explore various investment scenarios and compare different options, try our investment calculator for comprehensive analysis.
Why Use CAGR?
CAGR smooths out volatility of year-by-year growth rates, making it easier to compare investments or evaluate performance over time.
CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1
Understanding Your Results
The CAGR calculator provides three key metrics to help you understand your investment performance over time.
CAGR (Compound Annual Growth Rate)
This is the mean annual growth rate of your investment over the specified period. It represents a smoothed annualized return.
Total Growth
This shows the actual dollar amount your investment has gained (or lost) over the specified period.
Growth Percentage
This represents the total percentage increase (or decrease) of your investment over the specified period.
Important Considerations and Limitations
While CAGR is a useful tool for measuring investment performance, it's important to understand its limitations.
1. Doesn't Reflect Volatility
CAGR smooths out the investment's performance over time, ignoring volatility and fluctuations that occurred during the period.
2. Assumes Constant Growth
CAGR implies steady growth each year, which rarely happens in real-world investments.
3. Historical, Not Predictive
Past performance does not guarantee future results. High historical CAGR doesn't ensure future performance.
Real-World CAGR Examples
📈 Stock Market Investment
Scenario: Invested $10,000 in S&P 500 index fund
Period: January 2015 - December 2024 (10 years)
Ending Value: $30,500
CAGR: 11.8% annually
This represents historical average market returns. Past performance doesn't guarantee future results.
🏠 Real Estate Investment
Scenario: Rental property purchased for $250,000
Period: 2015 - 2024 (9 years)
Current Value: $425,000
CAGR: 6.2% annually
Excludes rental income and operating costs. Real estate returns vary significantly by location.
💰 Business Revenue Growth
Scenario: Small business annual revenue
Year 1 Revenue: $500,000
Year 5 Revenue: $850,000
CAGR: 11.1% annually
Consistent growth demonstrates healthy business expansion year-over-year.
Industry CAGR Benchmarks
Stock Market
S&P 500 (Long-term): 10% CAGR
Tech Stocks: 12-15% CAGR
Blue-Chip Companies: 8-12% CAGR
Real Estate
Residential Property: 3-6% CAGR
Commercial Real Estate: 4-8% CAGR
REITs (Real Estate Trusts): 8-12% CAGR
Bonds & Fixed Income
Government Bonds: 2-4% CAGR
Corporate Bonds: 3-6% CAGR
High-Yield Bonds: 5-8% CAGR
Savings & Cash
High-Yield Savings: 4-5% CAGR
Money Market: 3-4% CAGR
Regular Savings Account: 0.1-1% CAGR
Common Mistakes When Using CAGR
❌ Mistake 1: Ignoring Volatility
CAGR smooths returns, hiding year-to-year volatility. An investment with 15% CAGR but 40% swings is riskier than one with steady 10% returns.
❌ Mistake 2: Cherry-Picking Time Periods
Choosing start and end dates can manipulate CAGR results. A stock's 5-year CAGR might look great, but past 10 years might be mediocre.
❌ Mistake 3: Comparing Different Asset Classes
Don't compare a stock's 12% CAGR to a bond's 4% CAGR without considering risk. Higher returns come with higher risk.
❌ Mistake 4: Assuming Future Performance
20% historical CAGR doesn't mean future 20% returns. Market conditions change. Always use conservative estimates for projections.
❌ Mistake 5: Ignoring Inflation
A 6% CAGR is unimpressive if inflation is 4%. Your real returns (inflation-adjusted) are only 2% annually.
❌ Mistake 6: Forgetting About Taxes & Fees
CAGR doesn't account for taxes or investment fees. Your actual take-home returns might be 2-3% lower than the calculated CAGR.
CAGR vs. Other Return Metrics
| Metric | Formula | Best For | Limitations |
|---|---|---|---|
| CAGR | (Ending/Beginning)^(1/Years) - 1 | Regular investments over fixed periods | Ignores volatility, assumes constant growth |
| XIRR | Irregular cash flow returns | Investments with multiple cash flows | More complex calculation, harder to understand |
| Total Return | (Ending - Beginning) / Beginning | Simple 1-3 year investments | Doesn't account for time, misleading for long periods |
| ROI | (Gain / Cost) × 100 | Business investments and projects | Doesn't annualize, ignores time value |
💡 Pro Tips for Using CAGR
Use 5-10 year periods: Short-term CAGR is volatile. Longer periods provide more reliable trend analysis.
Compare apples to apples: Compare CAGR within the same asset class. Stocks vs bonds aren't directly comparable.
Use standard benchmarks: Compare your investment's CAGR to relevant indices (S&P 500, Russell 2000, etc.).
Account for inflation: Subtract inflation rate from CAGR to get real returns (inflation-adjusted).
Consider risk metrics: Use standard deviation or Sharpe ratio alongside CAGR for complete picture.
Look at recent performance: 10-year CAGR might be 8%, but recent 1-year return could be 15% or -5%.
Frequently Asked Questions (FAQ)
Q: What is CAGR and why is it important?
A: CAGR stands for Compound Annual Growth Rate. It represents the mean annual growth rate of an investment over a specified period, providing a smoothed annualized growth rate for easier comparison.
Q: How is CAGR different from average annual return?
A: CAGR accounts for the effects of compounding, while average annual return is a simple arithmetic mean. CAGR provides a more accurate representation of growth over time.
Q: What are the limitations of using CAGR?
A: CAGR doesn't reflect investment risk or volatility, assumes constant growth rate, can be manipulated by time periods, and historical CAGR doesn't guarantee future performance.
Q: Can CAGR be negative?
A: Yes, CAGR can be negative when the ending value is less than the beginning value. This indicates a decline in value over the measured period.
Q: How can I use CAGR in investment analysis?
A: CAGR is useful for comparing different investments, benchmarking against market indices, evaluating business metrics, and setting realistic expectations for future performance.
Q: Is CAGR better than other return metrics?
A: CAGR is useful but should be used alongside other metrics. It's best for understanding long-term growth trends but doesn't show volatility or risk.