What Is CAGR (Compound Annual Growth Rate)?
CAGR is the single, steady annual growth rate that would take an investment from its beginning value to its ending value over a given number of years, assuming the growth compounded evenly every year. It "smooths out" a bumpy, real-world return path into one clean annualized number, which is why it's the standard way investors, analysts, and companies describe growth over multi-year periods.
How to Use the CAGR Calculator
- Enter the beginning value of the investment (what it was worth at the start).
- Enter the ending value (what it's worth now, or at the end of the period).
- Enter the number of years between the two values.
- Read off the CAGR, plus the year-by-year table showing how the value would compound at that steady rate.
CAGR Formula
CAGR vs. Simple Average Return — Why They're Different
A common mistake is to average yearly percentage returns and treat that as the "real" growth rate. But averaging returns ignores compounding, and volatility makes the two numbers diverge — sometimes dramatically.
You invest $100. Year 1: the investment gains 100%, so it's worth $200. Year 2: it loses 50%, so it drops back to $100.
Simple average of the two yearly returns: (100% + (−50%)) ÷ 2 = 25% — this makes it look like the investment grew, on average, by a quarter each year.
But the investment started at $100 and ended at $100 — no growth at all. The actual CAGR is (100 ÷ 100)^(1/2) − 1 = 0%.
CAGR reflects what actually happened to your money; the simple average of returns can be badly misleading whenever returns are volatile, because a large loss needs an even larger gain to offset it (a 50% drop needs a 100% gain just to break even).
Worked Example
Beginning value: $10,000. Ending value: $20,000. Time: 5 years.
CAGR = (20,000 ÷ 10,000)^(1/5) − 1 = 2^0.2 − 1 ≈ 14.87% per year.
At that steady 14.87% annual rate, the value would be about $11,487 after year 1, and would compound up to exactly $20,000.00 by year 5 — even though the investment may not have grown at a perfectly even pace in reality.
Understanding Your Results
CAGR is the annualized growth rate implied by your beginning and ending values. Total Growth ($ and %) shows the overall change in value over the whole period, not per year. Growth Multiple shows how many times over the original value grew (a 2.00x multiple means the value doubled). The year-by-year table shows what the value would look like at each year if it had grown at exactly the CAGR rate every single year — a useful reference path, even though actual year-to-year returns are almost always uneven.
Important Considerations
- CAGR describes the start and end points only — it says nothing about how bumpy the ride was in between, and two very different return paths can produce the identical CAGR.
- CAGR cannot be calculated meaningfully if the beginning value is zero or negative, or if the number of years is zero or negative.
- Past CAGR is historical fact for that specific period — it is not a forecast or guarantee of future growth.
Common Mistakes to Avoid
- Confusing CAGR with the simple average of yearly percentage returns — as the worked example above shows, they can differ enormously.
- Comparing CAGR figures calculated over different time periods as if they were directly equivalent.
- Assuming a historical CAGR will simply continue into the future at the same rate.
Frequently Asked Questions
CAGR is used to compare the growth of investments, businesses, or any measurable value over multi-year periods by expressing the growth as a single, smoothed annual percentage rate — making it much easier to compare options with different holding periods.
Simple averaging ignores compounding and volatility. Because losses and gains aren't symmetric when compounded (a 50% loss requires a 100% gain to recover), a volatile investment's simple average return is almost always higher than its true CAGR.
Yes. If the ending value is lower than the beginning value, CAGR will be negative, reflecting an annualized decline in value over the period.
No. CAGR only uses the beginning value, ending value, and time elapsed — it says nothing about how volatile the path between those two points was, so two investments with identical CAGRs can have very different risk profiles.
Broad stock market indexes have historically produced a CAGR in roughly the 7–10% range over long multi-decade periods before inflation, though this varies by period and index, and future results are never guaranteed.