What is the CAGR Calculator?
Compound annual growth rate answers a specific question: what steady annual rate would have taken an investment from its starting value to its ending value over a given period? It converts a messy sequence of gains and losses into one comparable number.
This calculator computes that rate from three inputs. It is the standard way to compare investments of different sizes held over different periods on an equal footing.
What each input means
- Starting value
- The value at the beginning of the period.
- Ending value
- The value at the end. Include reinvested income for a complete picture; exclude it and you are measuring price growth only.
- Years
- The period between the two values. Fractional years are valid and matter for short holdings.
How this calculation works
The formula takes the ratio of ending to starting value, raises it to the power of one divided by the number of years, and subtracts one. That produces the constant annual rate which, compounded across the period, would deliver exactly the observed result.
By construction it smooths everything that happened in between. An investment that doubled then halved and one that crept up steadily can show identical CAGR — which is precisely why the figure should never be read as a description of the journey.
Formula: CAGR = (ending value ÷ starting value)^(1/years) − 1
Getting the most out of the result
- Use CAGR to compare investments, not to describe risk. It says nothing about volatility along the way.
- Include reinvested dividends or interest in the ending value, or you will understate the true return.
- Be cautious with short periods. A CAGR over one or two years is dominated by whatever happened to be going on then.
- Compare against inflation to see whether the growth was real. A positive CAGR below inflation is a loss in purchasing power.
- Where money was added or withdrawn during the period, CAGR is the wrong tool — it assumes a single untouched investment.
Common mistakes to avoid
The characteristic error is reading CAGR as though returns actually arrived at that steady rate, and then being alarmed when a real portfolio behaves nothing like it. Quoting a CAGR over a very short window is similarly misleading, since it annualises whatever happened to occur. People also compute it on price alone while ignoring reinvested income, understating the real return, and apply it to portfolios with contributions and withdrawals where a money-weighted measure would be appropriate instead.
Frequently asked questions
What is a good CAGR?
It only means something relative to the asset class, the period and the risk taken. A modest CAGR from a low-risk holding may be a better outcome than a higher one from something far more volatile. Compare against inflation and against a relevant benchmark.
How does CAGR differ from average return?
A simple average adds annual returns and divides by the count, which overstates growth because it ignores compounding. CAGR reflects actual compounded growth. A year of plus fifty percent followed by minus fifty percent averages zero but has a clearly negative CAGR.
Can CAGR be negative?
Yes. If the ending value is below the starting value, the rate is negative, expressing the annualised rate of decline over the period.
Does CAGR account for volatility?
No, and this is its main limitation. Two investments with identical CAGR can have had entirely different experiences. Use it alongside a volatility measure if risk matters to your decision.
Should I use CAGR if I added money during the period?
No. CAGR assumes one investment left untouched. With contributions or withdrawals, a money-weighted return such as XIRR reflects your actual experience more accurately.
What period should I measure over?
Long enough to span varied conditions — several years at minimum for growth assets. Short-period figures are volatile and easily misread as a durable rate.
Is CAGR the same as annualised return?
For a single lump sum held throughout, effectively yes. The terms are often used interchangeably, though annualised return sometimes describes calculations that handle cash flows differently.