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Investments

CAGR Calculator

Annualized return for a period (start to end value)

How to Use the CAGR Calculator

Calculate the Compound Annual Growth Rate (CAGR) of an investment. CAGR shows the average annual return rate that would take you from initial value to final value.

  1. Enter the initial investment value (starting value).
  2. Enter the final investment value (ending value).
  3. Enter the investment period in years.
  4. View the CAGR percentage result.
  5. Use CAGR to compare different investments or assess historical performance.

CAGR Calculation Formula

CAGR smooths out volatility and shows the average annual return rate.

CAGR Formula

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

Where n is the number of years. This formula calculates the consistent annual growth rate.

Example:

Input: Initial: $100,000, Final: $200,000, Years: 5

Calculation: CAGR = [(200,000 / 100,000)^(1/5)] - 1 = [2^0.2] - 1

Result: CAGR = 14.87%

CAGR Interpretation

If CAGR = r%, investment grew at r% annually on average

CAGR shows what consistent annual return would achieve the same result.

Example:

Input: CAGR of 12%

Calculation: Investment grew at average of 12% per year

Result: Equivalent to consistent 12% annual returns

Real-World Use Cases

CAGR helps compare investments and understand historical performance.

Investment Performance Comparison

Compare returns of different investments over the same time period.

Example: Stock A: CAGR 15% vs. Stock B: CAGR 10% - Stock A performed better

Mutual Fund Analysis

Evaluate mutual fund performance over 3, 5, or 10-year periods.

Example: Fund A: 12% CAGR over 5 years vs. Fund B: 10% CAGR - Fund A is better

Portfolio Assessment

Calculate overall portfolio CAGR to assess investment strategy success.

Example: Portfolio grew from $500,000 to $1,000,000 in 7 years = 10.4% CAGR

Goal Setting

Determine required CAGR to reach investment goals.

Example: Need $1M from $500K in 5 years = need 14.87% CAGR

Historical Analysis

Analyze how investments performed historically to inform future decisions.

Example: S&P 500 historical CAGR over 30 years is approximately 10%

Tips & Best Practices

Tips

  • Use CAGR to compare investments of different time periods by annualizing returns.
  • CAGR smooths volatility - understand that actual returns varied year-to-year.
  • Compare CAGR to relevant benchmarks (S&P 500, market average) for context.
  • Use CAGR for long-term investments (3+ years) - short-term CAGR can be misleading.
  • Consider CAGR alongside other metrics like volatility and maximum drawdown.
  • Remember that past CAGR doesn't guarantee future returns.

Common Mistakes to Avoid

  • Using CAGR for periods less than 1 year - results can be misleading.
  • Comparing CAGR across different time periods without context.
  • Assuming CAGR reflects actual year-by-year returns - it's an average.
  • Ignoring volatility and risk when comparing investments by CAGR alone.
  • Extrapolating past CAGR into future expectations without considering market conditions.

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