CAGR
Compound annual growth rate
About This Calculator
Compound Annual Growth Rate (CAGR) measures the smooth annual growth rate of an investment over a multi-year period, as if it grew at a perfectly steady rate. It is the most useful single metric for comparing investments of different durations and smooths out year-to-year volatility.
Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1
n = number of years
Ending Value = Beginning Value × (1 + CAGR)ⁿ
Example Calculation
Investment grows from $10,000 to $18,000 over 6 years
- CAGR = (18,000 / 10,000)^(1/6) − 1
- = (1.8)^(0.1667) − 1
- = 1.1027 − 1 = 0.1027 = 10.27%
CAGR = 10.27% per year
CAGR Required to Grow $10,000
| Target | 5 Years | 10 Years | 20 Years |
|---|---|---|---|
| $15,000 | 8.45% | 4.14% | 2.05% |
| $20,000 | 14.87% | 7.18% | 3.53% |
| $30,000 | 24.57% | 11.61% | 5.65% |
| $50,000 | 37.97% | 17.46% | 8.38% |
| $100,000 | 58.49% | 25.89% | 12.20% |
Frequently Asked Questions
What is the difference between CAGR and average annual return?
CAGR is the geometric mean — it accounts for compounding and gives the true annualized rate. Simple average (arithmetic mean) of annual returns overstates performance when returns vary. A stock up 50% then down 33% averages +8.5% but has CAGR of 0%.
What is a good CAGR for an investment?
The S&P 500 has historically returned about 10% CAGR before inflation (7% after). Individual stocks, real estate, or business investments should be evaluated against this benchmark. A startup might target 30%+ CAGR to justify the risk.
Can CAGR be negative?
Yes. If ending value is less than beginning value, CAGR is negative. For example, an investment falling from $10,000 to $7,000 over 3 years has CAGR = (0.7)^(1/3) − 1 ≈ −11%.
What does CAGR not capture?
CAGR shows only start and end points — it ignores what happened in between. Two investments with the same CAGR might have very different volatility paths. Always consider standard deviation and maximum drawdown alongside CAGR.