CAGR Calculator – Compound Annual Growth Rate

What Is CAGR and How It Works

CAGR (Compound Annual Growth Rate) is the smoothed annual rate of return that an investment would need to achieve each year to grow from its beginning value to its ending value over a given time period. Unlike a simple average of yearly returns, CAGR assumes that gains are reinvested at the end of each year, and it produces a single, steady rate that eliminates the noise of year-to-year volatility.

Why does this matter? Suppose an investment gains 50% in year one and loses 30% in year two. The simple average return is +10%, but the actual ending value tells a different story. Starting with $10,000, you would have $15,000 after year one and $10,500 after year two. The CAGR over that two-year period is only about 2.47%, which accurately reflects the real annualized growth. Simple averages can paint a misleadingly rosy picture when returns are volatile.

CAGR is one of the most widely used metrics in finance. Investors use it to compare mutual fund performance, evaluate stock portfolios, benchmark private equity returns, and project business revenue growth. Analysts rely on it in earnings presentations and annual reports. Because CAGR produces a single number, it is easy to communicate and compare across different asset classes, time periods, and currencies.

However, CAGR has important limitations. It does not reveal anything about the path of returns or the risk taken to achieve them. Two investments can share the same CAGR while having vastly different volatility profiles. CAGR also ignores intermediate cash flows such as dividends, additional contributions, or withdrawals. For situations involving multiple cash flows, metrics like IRR or XIRR are more appropriate. Always pair CAGR with risk metrics like standard deviation and maximum drawdown when making investment decisions.

CAGR Formula

The CAGR formula is straightforward:

Where Ending Value is the final value of the investment, Beginning Value is the initial value, and n is the number of years.

Worked example: You invested $10,000 in a stock fund five years ago, and it is now worth $18,000. What is the CAGR?

• Ending Value / Beginning Value = $18,000 / $10,000 = 1.80
• 1/n = 1/5 = 0.20
• 1.80^0.20 = 1.1247
• CAGR = 1.1247 - 1 = 0.1247, or 12.47%

This means your investment grew at an equivalent rate of 12.47% per year for five years, regardless of the actual year-by-year returns. You can also reverse the formula to find the future value: multiply the beginning value by (1 + CAGR)ⁿ. This calculator supports both directions -- enter any three values and it will solve for the fourth.

Key Terms

CAGR vs Average Return Comparison

One of the most common misconceptions in investing is treating the arithmetic average return as the true growth rate. The arithmetic average simply adds up yearly returns and divides by the number of years. The geometric return (CAGR) accounts for the compounding effect, and it is always less than or equal to the arithmetic average when returns vary.

This gap between the two is called volatility drag. The more volatile the returns, the larger the drag. Consider the following example:

All three scenarios have the same 10% arithmetic average return, yet the actual outcomes range from a 20.96% total gain to a 4% total loss. The high-volatility scenario actually destroyed wealth despite having a positive average return. This is why CAGR is the more honest measure of real investment performance, and why financial professionals prefer it over simple averages.

Practical Examples

Stock Investment

An investor bought shares of a technology ETF for $25,000 in January 2015. By January 2025, the position was worth $72,000. The CAGR over 10 years is ($72,000 / $25,000)^1/10 - 1 = 11.15%. This single number lets the investor quickly compare the ETF's performance against a benchmark like the S&P 500 (approximately 10.5% CAGR over the same period).

Business Revenue Growth

A SaaS startup had $500,000 in annual recurring revenue (ARR) in 2020 and grew it to $4,200,000 by 2025. The 5-year revenue CAGR is ($4,200,000 / $500,000)^1/5 - 1 = 53.0%. Venture capitalists often use revenue CAGR to compare growth trajectories of competing portfolio companies, independent of the actual year-by-year fluctuations.

Real Estate Appreciation

A homeowner purchased a property for $350,000 in 2010 and it appraised at $580,000 in 2025. The 15-year appreciation CAGR is ($580,000 / $350,000)^1/15 - 1 = 3.41%. Note that this represents price appreciation only and does not include rental income, maintenance costs, or mortgage interest. For a complete picture, use our rental yield calculator alongside CAGR.

Historical CAGR Benchmarks

The table below shows approximate historical CAGR figures for major asset classes in the United States. These are nominal returns (before adjusting for inflation) and are based on widely cited long-term data through 2024.

These benchmarks serve as useful reference points. When you calculate the CAGR of your own portfolio or a specific investment, comparing it against these figures helps you gauge whether your returns are above or below market norms. Keep in mind that past performance is no guarantee of future results, and the specific start and end dates can significantly affect the measured CAGR. Use our compound interest calculator to model future growth based on an assumed CAGR.