CAGR Calculator
The Compound Annual Growth Rate (CAGR) is one of the most useful metrics for evaluating the performance of an investment over time. It smooths out volatile returns into a single annualized rate, making it easy to compare different investments or benchmark against indices.
Enter the initial value, final value, and the number of years. The calculator computes the CAGR using the standard formula, along with the total return percentage and investment multiplier to give you a complete picture of your investment's growth.
How it works
CAGR = (Final Value / Initial Value)^(1 / Number of Years) - 1. The result is expressed as a percentage representing the mean annual growth rate.
Use cases
- Evaluating the annualized return of a stock or portfolio
- Comparing performance of different investments over different time periods
- Projecting future value based on historical growth rates
- Benchmarking business revenue or profit growth over multiple years
Frequently asked questions
How do I calculate CAGR for 5 years?
Divide the final value by the initial value, raise the result to the power of 1/5, then subtract 1. For example, if an investment grew from $10,000 to $16,000 in 5 years, CAGR = (16,000 / 10,000)^(1/5) - 1 ≈ 9.86% per year. This calculator does the math instantly when you enter the three values.
What is the difference between CAGR and average annual return?
The average annual return is a simple arithmetic mean, which ignores compounding and can overstate performance when returns are volatile. CAGR is a geometric mean: it tells you the single constant rate that would take the initial value to the final value over the period. For multi-year comparisons, CAGR is usually the more accurate metric.
Can CAGR be negative?
Yes. If the final value is lower than the initial value, the CAGR will be negative, indicating the investment shrank on an annualized basis. The formula works the same way; the result simply comes out below zero.
What is a good CAGR for an investment?
There is no universal number — it depends on the asset class, the risk taken, and the time period. The most useful approach is to compare an investment's CAGR against a relevant benchmark, such as a broad market index or inflation, over the same period. A CAGR that consistently beats its benchmark after fees is generally considered strong.
What are the limitations of CAGR?
CAGR smooths out volatility, so it hides how bumpy the ride was between the start and end dates. It also assumes a single initial investment: if you made deposits or withdrawals along the way, CAGR will be distorted, and a money-weighted measure like IRR is more appropriate. Use CAGR for point-to-point growth comparisons, not cash-flow analysis.