CAGR Calculator
About CAGR Calculator
What Is CAGR?
CAGR stands for Compound Annual Growth Rate. It measures the mean annual growth rate of an investment over a specified period longer than one year. Think of it as the smoothed-out annual return that, if applied consistently each year, would take your beginning value to your ending value. Real investments fluctuate wildly from year to year – one year you might gain 22%, the next you lose 8%. CAGR strips away that volatility and gives you a single, clean number. It’s the go-to metric for comparing mutual funds, stock portfolios, revenue growth, and even population trends.
The CAGR Formula
The formula is CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1. Multiply the result by 100 to express it as a percentage. For example, if you invested $10,000 and it grew to $18,500 over 5 years, the CAGR is (18500/10000)^(1/5) - 1 = 0.1311, or 13.11% per year. This doesn’t mean you earned exactly 13.11% each year – it means the equivalent smooth rate that produces the same outcome.
How to Use This Calculator
Enter the beginning value of your investment, the ending value, and the number of years. Click Calculate and the tool instantly displays your CAGR as a percentage. You can use this for any scenario – stock portfolios, real estate appreciation, business revenue growth, or even personal net worth tracking. The calculator also shows what your investment would be worth at the computed CAGR for additional future years, helping you project forward.
Limitations of CAGR
CAGR is a useful simplification, but it hides risk. Two investments can have identical CAGRs yet vastly different risk profiles. One might climb steadily while the other swings between huge gains and painful losses. CAGR also ignores cash flows – it assumes you invested once at the start and never added or withdrew money. For portfolios with regular contributions, IRR (Internal Rate of Return) is a better measure.
Frequently Asked Questions
What is a good CAGR for investments?
Historically, the S&P 500 has delivered a CAGR of roughly 10% before inflation. A CAGR above 15% is considered excellent for individual stock investments over a 5-10 year period.
Is CAGR the same as average annual return?
No. Average annual return is the arithmetic mean of yearly returns. CAGR is the geometric mean, which accounts for compounding. CAGR is always lower than or equal to the arithmetic average and is considered more accurate for measuring investment performance.
Can CAGR be negative?
Yes. If your ending value is less than your beginning value, the CAGR will be negative, indicating a loss over the period.
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