Compound Annual Growth Rate (CAGR) Calculator

PercentageCalculatorFree.com Team Last Updated: January 23, 2026

Calculate Compound Annual Growth Rate for investments.

Beginning Value

Ending Value

Number of Years

Years

CAGR

Understanding CAGR

What is CAGR?

Compound Annual Growth Rate (CAGR) measures the average annual growth rate of an investment over a period longer than one year. It smooths out volatility to show steady growth.

Shows the "smoothed" rate of return
Useful for comparing investments with different time periods
Does NOT reflect actual year-by-year performance

The Formula

CAGR Calculation

CAGR = (End Value / Start Value)^(1/Years) - 1

Worked Example

Scenario: Investment grew from $10,000 to $19,500 over 5 years.

Step 1: End/Start = 19500/10000 = 1.95

Step 2: 1.95^(1/5) = 1.95^0.2 = 1.143

Step 3: 1.143 - 1 = 0.143 = 14.3%

CAGR = 14.3% per year

Common Use Cases

Investments: Compare mutual funds, stocks
Business: Revenue growth over years
Real estate: Property value appreciation

Pro Tips

CAGR hides volatility: A stock can crash and recover
Use for long periods: Best for 3+ year comparisons
Compare apples to apples: Same time periods only

CAGR: The Smoothed Reality

CAGR represents the constant rate of return that would take an investment from its beginning value to its ending value over a specified period. Unlike simple averages, CAGR smooths out volatility to show what your investment actually achieved.

Why Simple Averages Mislead

Example: If you gain 100% one year and lose 50% the next, your simple average is +25%.
Reality: You started with $100, grew to $200, then dropped to $100. Your actual gain is 0%.
CAGR tells the truth: It correctly shows 0% annual growth in this scenario.

CAGR Investment Benchmarks

S&P 500 historical CAGR: ~10% over the long term. Real estate: 3-5% (price appreciation). Emerging markets can show 15%+ but with higher volatility. When evaluating investments, compare CAGR over similar time periods - a 5-year CAGR is more reliable than a 1-year figure.

❓ Frequently Asked Questions

What does CAGR tell an investor?

CAGR provides a smoothed annual rate of return, making it easier to compare the performance of different investments over time, ignoring short-term volatility.

How is CAGR different from average annual return?

Average return is just the mean of yearly gains. CAGR accounts for compounding, which is more accurate for long-term growth.

Is CAGR a good predictor of future growth?

No. CAGR describes historical growth. It doesn't guarantee that the investment will continue to grow at that rate in the future.

🔍 Authoritative References

For more information about advanced financial calculations, consult these trusted sources:

Investopedia - Financial education and investment guidance
SEC Investor Education - Official investor protection resources
Federal Reserve - Monetary policy and financial stability information