CAGR Calculator

What is a CAGR Calculator?

A **CAGR (Compound Annual Growth Rate) Calculator** is a financial tool that measures the average, year-over-year growth rate of an investment over a specific period. Unlike a simple (absolute) return, which just tells you the total growth, CAGR gives you a "smoothed" annual rate, as if the investment had grown at a steady pace. This makes it one of the most accurate ways to compare the performance of different investments (like stocks, mutual funds, or real estate) over time.

The Formula for Compound Annual Growth Rate (CAGR)

The formula for CAGR looks complex, but it's just finding the average root of the total growth. Our calculator does the math for you, but here is the formula for a clear understanding:

CAGR = [ (Ending Value / Beginning Value) ^ (1 / N) ] - 1

Ending Value (EV): The value of the investment at the end of the period.
Beginning Value (BV): The value of the investment at the start.
N: The total number of years the investment was held.

The result is a decimal, which is multiplied by 100 to get the percentage you see in the calculator.

Solved Example

Let's say you invested in a mutual fund and want to calculate your investment growth:

Beginning Value (BV): $10,000
Ending Value (EV): $25,000
Investment Period (N): 5 years

Calculation:

1. Ending Value / Beginning Value = $25,000 / $10,000 = 2.5

2. (1 / N) = 1 / 5 = 0.2

3. (2.5) ^ (0.2) = 1.20112

4. 1.20112 - 1 = 0.20112

CAGR = 0.20112 × 100 = 20.11%

This means your $10,000 investment grew at a *compound* rate of 20.11% per year for 5 years to reach $25,000.

Practical Applications & Use Cases

The Compound Annual Growth Rate is a core metric in finance. You can use this investment growth calculator to:

Compare Investments: See whether a stock that grew 100% in 5 years performed better or worse than a mutual fund that grew 75% in 3 years. CAGR provides an apples-to-apples comparison.
Analyze Business Performance: A company can calculate the CAGR of its revenue or profit to show a smoothed, consistent growth rate to investors, ironing out volatile years.
Set Future Goals: If your investment has a 10-year CAGR of 8%, you can use that as a realistic baseline for future projections (using our Compound Interest Calculator).
Understand Volatility: This calculator also shows "Absolute Return." You might see a high absolute return (e.g., 150%), but a low CAGR (if it took 20 years). CAGR provides the necessary context.

What is a "Good" CAGR?

A "good" CAGR is highly relative and depends on the investment type, risk, and time period. There is no single "good" number, but here are some common benchmarks:

S&P 500 (Historical Average): The long-term average annual return for the S&P 500 (a benchmark for the US stock market) is often cited as being around 8-10%.
Bonds (Lower Risk): A bond portfolio might have a much lower CAGR, perhaps in the 3-5% range, but with far less volatility.
Inflation: At a minimum, a "good" CAGR should be higher than the rate of inflation over the same period to represent a real increase in your purchasing power.

Ultimately, a "good" CAGR is one that meets or exceeds your personal financial goals for the level of risk you are willing to take.

Frequently Asked Questions (FAQ)

1. What's the difference between CAGR and Absolute Return?

Absolute Return is the total percentage your investment grew from start to finish (e.g., $10k to $25k is a 150% absolute return). CAGR is the *annualized* rate that would have been required to get that same result. Our calculator shows both, and CAGR is the superior metric for comparison.

2. Does CAGR account for additional contributions?

No. The standard CAGR formula assumes only a single starting value and a single ending value. It does not factor in adding or withdrawing money. For investments with regular contributions (like a 401k or SIP), you would need to use a different metric like XIRR (Extended Internal Rate of Return).

3. Can CAGR be negative?

Yes. If your Ending Value is less than your Beginning Value, the calculator will show a negative CAGR, representing the average annual rate at which your investment lost value.

4. Why is CAGR better than 'average annual return'?

A simple 'average' can be misleading. If an investment goes up 50% (to $150) and then down 50% (to $75), the 'average' return is 0%. But in reality, you lost 25%. CAGR uses the compound (geometric) mean, which correctly shows a negative return in that scenario, making it far more accurate.

Understanding your CAGR is the first step in analyzing your investment's past performance. To project its future, try our Compound Interest Calculator or our ROI Calculator to explore different financial scenarios.

Calculate Your CAGR

Compound Annual Growth Rate