You can calculate your investment’s Compound Annual Growth Rate with ease using our quick, clear, and free CAGR calculator.
Compound Annual Growth Rate (CAGR) Calculator
Calculate the mean annual growth rate of an investment over time
CAGR
Total Return
Absolute Gain
Compound Annual Growth Rate (CAGR) is a useful measure of growth over multiple time periods. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
Unlike average annual growth rate, CAGR smooths the growth trajectory and provides a constant rate of return over the period. It’s particularly useful for comparing investments with different time horizons or volatile year-to-year returns.
CAGR vs. Simple Average Growth Rate
The simple average growth rate calculates the arithmetic mean of annual growth rates, while CAGR calculates the geometric mean. CAGR provides a more accurate picture of investment performance, especially for volatile investments.
Understanding Compound Annual Growth Rate
Compound Annual Growth Rate (CAGR)
The mean annual growth rate of an investment over a specified period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
CAGR vs. Average Annual Return
CAGR provides a smoothed annual growth rate that excludes the effects of volatility and compounding. Average annual return simply calculates the arithmetic mean of yearly returns, which can be misleading for volatile investments.
CAGR Formula
CAGR = (Ending Value ÷ Beginning Value)(1 ÷ Number of Years) – 1. This formula calculates a constant rate of return over the period that would be required for an investment to grow from its beginning balance to its ending balance.
Uses of CAGR
CAGR is commonly used to compare the performance of different investments, analyze business growth over multiple years, project future values, and track the performance of mutual funds and stocks against market indices.
Limitations of CAGR
CAGR doesn’t reflect investment risk, volatility, or the timing of cash flows. It assumes a smooth growth path and doesn’t account for values dropping during the investment period. It also doesn’t consider the effect of inflation or taxes.
Interpreting CAGR Values
Positive CAGR indicates growth, while negative CAGR indicates decline. A higher CAGR generally indicates better performance, but should be evaluated in the context of risk, investment type, and economic conditions. Historical CAGR doesn’t guarantee future performance.