CAGR Calculator
Calculate the annual growth rate of your investment over time.
CAGR Calculation
What is CAGR?
The Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
This calculator helps you to
- •Calculate average growth over a specific number of years.
- •Compare the historical returns of stocks with bonds or a savings account.
- •Evaluate business metrics like revenue or user growth over time.
Best for
- •Investors comparing different mutual funds or stocks
- •Business owners analyzing revenue growth
- •Anyone wanting to understand the true average annual return of an asset
CAGR (Compound Annual Growth Rate) is a metric that measures the average annual growth rate of an investment over a specified period, assuming profits are reinvested. It smooths out volatility to show a consistent annual rate, making it easier to compare different investments.
Unlike absolute returns or simple average returns, CAGR accounts for the compounding effect and provides a more accurate picture of investment performance. It is widely used by investors, analysts, and financial planners to evaluate and compare investment returns.
How CAGR is Calculated
CAGR formula: CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years. For example, if an investment grows from $10,000 to $25,000 over 5 years, CAGR = (25000/10000)^(1/5) - 1 = 20.11%. This means the investment grew at an equivalent constant rate of 20.11% per year, even though actual yearly returns may have varied significantly.
CAGR vs Average Returns
Simple average return can be misleading. For example: Year 1 (+100%) and Year 2 (-50%) gives an average return of 25%. But $100 invested would be $200 after Year 1 and back to $100 after Year 2 — a 0% actual return. CAGR correctly captures this: (100/100)^(1/2) - 1 = 0%. Always use CAGR for evaluating multi-year investment performance.
Frequently Asked Questions
What is a good CAGR for investments?
A 'good' CAGR depends on the asset class and time period. Historical benchmarks: US stock market (S&P 500) ~10% CAGR over 50+ years, gold ~7-8%, real estate ~4-5% (excluding rental income), bonds ~4-6%, and inflation ~2-3%. A CAGR that consistently beats inflation by 4-6% is generally considered good for equity investments.
What are the limitations of CAGR?
CAGR does not show volatility or risk — two investments with the same CAGR can have very different risk profiles. It also assumes profits are reinvested and doesn't account for additional investments or withdrawals during the period. CAGR measures point-to-point returns, so it is sensitive to the start and end dates chosen. For investments with regular cash flows, XIRR is a better metric.
How is CAGR different from XIRR?
CAGR measures growth between two points (initial and final value) and works best for lumpsum investments. XIRR (Extended Internal Rate of Return) accounts for multiple cash flows at different dates, making it ideal for SIPs, partial redemptions, or investments with irregular contributions. If you have only a single investment and single redemption, CAGR and XIRR give the same result.