CAGR Calculator
Calculate the Compound Annual Growth Rate of an investment.
What is CAGR?
Compound Annual Growth Rate, or CAGR, is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
Think of your investment journey like a road trip across a mountain range.
Some hours you drive fast (high returns), some hours you are stuck in traffic (low returns), and sometimes you might even have to backtrack (negative returns).
If you only looked at your average speed based on the speedometer at random moments, it wouldn't tell you much about the whole trip.
CAGR is the equivalent of your average speed for the entire journey. It ignores the peaks and valleys and tells you exactly what constant speed you would have needed to get from your starting point to your destination in the same amount of time.
It "smooths out" the volatility of returns, giving you a single, easy-to-compare number.
The Science Behind the Calculation
CAGR is not just a simple average; it is a geometric progression ratio. This matters because simple averages can be misleading when dealing with compounding assets.
For example, if an investment loses 50% one year and gains 50% the next, a simple average says your return is 0%. In reality, you lost money (if you start with $100, lose 50% to get $50, then gain 50%, you end up with $75). CAGR accounts for this reality.
The formula used in this calculator is:
CAGR = (Ending Value ÷ Beginning Value )^(1/n) – 1
Where:
- Ending Value is the total value of the investment at the end of the period.
- Beginning Value is the initial principal or investment amount.
- n is the number of years.
How to Use This Calculator
We have designed this tool to be straightforward, requiring just three key inputs to determine your growth rate.
- Enter the Beginning Value: Input the initial amount you invested or the value of the asset at the start of the period.
- Enter the Ending Value: Input the current value of the investment or the value at the end of the period you are analyzing.
- Set the Duration: Enter the number of years between the beginning and ending dates. You can use decimals (e.g.,
2.5for two and a half years) if necessary. - Calculate: Click the button to see your annualized return.
Interpreting Your Results
Once you have your CAGR percentage, how do you know if it is "good"? Context is key, but here are some general benchmarks:
- S&P 500 Benchmark: Historically, the S&P 500 (a major stock market index) has returned roughly 7% to 10% annually (inflation-adjusted). If your CAGR is close to this, you are performing on par with the broader market.
- Risk-Free Rate: Compare your result to high-yield savings accounts or government bonds (often 2%–5%). If your investment involves risk but your CAGR is only 3%, you might be better off in a safer savings vehicle.
- Negative CAGR: A negative number indicates that the investment has lost value over the specified timeframe.
Limitations of CAGR
While CAGR is a powerful metric, it is important to understand what it doesn't tell you:
- It Masks Volatility: Because CAGR smooths out returns, it hides the risk. An investment with a steady 8% return looks the same on paper as a volatile investment that swung wildly to average 8%. It does not reflect the emotional roller coaster or the risk you took to get there.
- It Ignores Cash Flow: This standard calculation assumes a single initial investment and a final value. It does not account for situations where you added more money (contributions) or withdrew money (distributions) during the time period.
- Past Performance Only: CAGR is strictly a historical measure. A high CAGR over the last five years does not guarantee the same growth rate for the next five.
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