What is CAGR?

CAGR (Compound Annual Growth Rate) represents the smoothed annual growth rate of your investment, eliminating the noise from yearly ups and downs. Think of it as your portfolio’s “average speedometer” over the entire period.

Why CAGR Matters

• A $10,000 investment growing to $20,000 in 5 years has a CAGR of 14.87%, even if the annual returns fluctuated dramatically.
• Unlike simple total returns, CAGR allows fair comparisons between stocks, mutual funds, or business revenues across varying timeframes.

How to Use This CAGR Calculator

1. Enter your values:
   • Initial investment (e.g., $10,000)
   • Final value (e.g., $25,000)
   • Investment duration in years (e.g., 7 years)
2. Get your CAGR percentage and view a growth chart instantly.

CAGR Formula & How to Calculate Manually

CAGR converts irregular investment growth into a consistent annual rate:

CAGR=(Final ValueInitial Value)1Years−1\text{CAGR} = \left(\frac{\text{Final Value}}{\text{Initial Value}}\right)^{\frac{1}{\text{Years}}} – 1CAGR=(Initial ValueFinal Value​)Years1​−1

Example:

• Initial Value = $5,000
• Final Value = $12,000
• Duration = 6 years

CAGR=(12,0005,000)16−1=15.10%\text{CAGR} = \left(\frac{12,000}{5,000}\right)^{\frac{1}{6}} – 1 = 15.10\%CAGR=(5,00012,000​)61​−1=15.10%

Excel shortcut:
=((FV/IV)^(1/n))-1

CAGR vs. Other Growth Metrics

Metric	Pros	Cons	Best Used For
CAGR	Smooths out volatility	Ignores cash flow timing	Multi-year performance comparison
AAGR	Shows yearly trends	Can overstate growth	Short-term trend analysis
Absolute	Simple dollar change	Misleading over long periods	Quick profit/loss overview

Real-World CAGR Examples

Case 1: Stocks vs. Mutual Funds

• Stock A: $8,000 → $22,000 in 10 years → 10.66% CAGR
• Fund B: $8,000 → $18,000 in 10 years → 8.45% CAGR

Key insight: Higher absolute returns don’t always mean a higher CAGR.

Case 2: Business Revenue Growth
A startup’s revenue grows from $200K in Year 1 to $1.2M in Year 5, with a CAGR of 43.09% — even if some years saw declines.

Limitations of CAGR

⚠️ Use CAGR carefully when:

• Investment volatility matters (e.g., a 50% loss followed by a 50% gain ≠ 0% CAGR)
• There are cash flows (deposits or withdrawals) during the period — XIRR is better here
• The time horizon is very short (1-2 years), as outliers can distort results

FAQ: Quick Answers

Q: Is CAGR the same as ROI?
A: No, ROI shows total return over time; CAGR annualizes that return.

Q: Can CAGR be negative?
A: Yes. For example, a drop from $10,000 to $7,000 over 3 years results in a -10.06% CAGR.

Q: What’s a good CAGR for stocks?
A: Historically, the market averages about 8-10% CAGR annually.