FinCalcs

Growth & Return

CAGR Calculator

Measure the smoothed annual growth rate of an investment.

CAGR Calculator

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How it works

The compound annual growth rate is the steady yearly rate that would turn a beginning value into an ending value over a set number of years. It smooths the bumps: a stock that jumps 40% one year and falls 10% the next still has one clear CAGR figure, which is a geometric mean rather than an arithmetic average.

Use it to compare investments held over different time spans, because it strips out the holding period and reports everything on a per-year basis.

Formula

CAGR = (EV / BV)1/n − 1

BV = beginning value, EV = ending value, n = years. The result is the constant rate that grows BV into EV.

Worked example

Example: an account grew from $10,000 to $25,000 over 5 years. CAGR = (25000 / 10000)^(1/5) − 1 = 20.11% per year. A flat 20.11% return each year would produce the exact same ending balance.

WORKED EXAMPLE — DEFAULT INPUTS

Beginning value$10,000
Ending value$25,000
Period (years)5
CAGR20.11%

What to know

One common mistake is quoting the arithmetic average instead of CAGR. If a portfolio gains 50% one year and loses 50% the next, the average return is 0% while the actual CAGR is −13.4%. CAGR is the honest number because it reflects what compounding actually did to your balance.

For most personal investments, two figures matter: the total gain and the CAGR. Total gain feels good; CAGR tells you whether the performance justified the time and risk. When friends compare portfolios held for different lengths, CAGR is the only fair comparison.

Run this same growth question for any asset you hold: the CAGR figure levels the playing field between a two-year trade and a twenty-year plan, so you are always comparing annual rates, never raw totals.

FAQ

Is CAGR the same as average return?

No. Average return adds the yearly returns and divides by years; CAGR is the geometric rate that compounds. For volatile assets the average is always higher than the CAGR.

Can CAGR be negative?

Yes. If the ending value is below the beginning value, the growth rate is negative, which is normal for a losing period.

What period should I use?

Use the full holding period in years. Partial years work too, for example 2.5 for two and a half years.

Does CAGR include dividends?

Only if you count reinvested dividends in the ending value. Many investors add them back so the figure reflects total return.