CAGR Calculator — Compound Annual Growth Rate

How to Calculate CAGR

The Compound Annual Growth Rate (CAGR) formula is: CAGR = (Ending Value / Beginning Value)^1/n − 1, where n is the number of years. Expressed as a percentage: CAGR % = [(EV/BV)^(1/n) − 1] × 100.

Step-by-step example: You invested $10,000 in 2015 and it grew to $25,000 by 2025 (10 years).

1. Divide ending by beginning: 25,000 ÷ 10,000 = 2.5
2. Take the nth root (n = 10): 2.5^1/10 = 2.5^0.1 = 1.09596...
3. Subtract 1: 1.09596 − 1 = 0.09596
4. Multiply by 100: CAGR ≈ 9.60% per year

This means your investment grew at a smoothed rate of 9.60% annually — regardless of year-to-year volatility. Even if it dropped 30% in year 3 and surged 40% in year 7, the CAGR captures only the starting and ending values, expressing the annualized return as if it were perfectly steady growth each year.

CAGR vs Average Annual Return: A Critical Difference

CAGR and arithmetic average annual return are not the same, and confusing them leads to serious investment errors. Here's why:

Example: An investment gains 100% in year 1, then loses 50% in year 2.

• Arithmetic average: (100% + (−50%)) / 2 = 25% per year — sounds great!
• Actual result: $100 → $200 → $100. Net gain: $0
• CAGR: (100/100)^(1/2) − 1 = 0% — correctly shows no real growth

The arithmetic average overstates performance because percentage gains and losses are not symmetric. Losing 50% requires a 100% gain just to recover. CAGR (the geometric mean) accounts for this compounding effect and represents the true annualized growth rate of a dollar invested.

Fund B looks like a star by arithmetic average (50%/year!) but your $100 went nowhere. Always use CAGR when evaluating multi-year investment performance.

What Is a Good CAGR? Benchmarks by Asset Class

CAGR benchmarks vary enormously by asset class and risk level. What constitutes "good" CAGR depends entirely on the investment type, time period, and risk assumed to achieve it:

Rule of 72: Divide 72 by the CAGR to estimate years to double. At 9% CAGR, 72/9 = 8 years to double. At 6%, 72/6 = 12 years. At 3%, 72/3 = 24 years. This quick mental math makes CAGR comparisons instantly actionable in everyday financial discussions.

Context matters enormously: A 20% CAGR for a small startup is expected and not impressive. A 20% CAGR for a $50 billion asset manager over 10 years would be extraordinary and almost certainly unsustainable. A 5% CAGR for bonds in a 2% inflation environment is excellent; the same 5% CAGR for an equity fund is underperformance. Always benchmark CAGR against the relevant index, not against absolute numbers in isolation. Past CAGR — especially for stock market investments — is not a guarantee of future results, as market conditions, interest rate environments, and business cycles change significantly over time.

CAGR in Business and Investing: Real-World Applications

CAGR is one of the most universally used metrics in finance, appearing across investment analysis, business strategy, and economic reporting:

Investment Performance Comparison

Fund managers and financial advisors use CAGR to compare returns across funds with different time periods. Most mutual fund and ETF fact sheets display 1-year, 3-year, 5-year, and 10-year CAGR. The 1-year CAGR is simply the total return for the past year. Longer-period CAGRs smooth out short-term volatility and give a more representative view of a manager's long-term performance.

Business Revenue Growth Analysis

Companies use revenue CAGR in earnings reports to show growth trajectory. A company that grew revenue from $500M (2019) to $890M (2024) over 5 years has a revenue CAGR of (890/500)^(1/5) − 1 = 12.2%. This lets investors quickly assess and compare growth rates across companies. Growth investors typically screen for businesses with revenue CAGR above 15–20% over 5+ years as a signal of strong competitive position.

Market Size Projections

Market research reports express forecasted growth as CAGR. "The global electric vehicle market is expected to grow at a CAGR of 23% from 2024 to 2030" is a standard form. The projected ending market size = starting size × (1 + 0.23)⁶. Be critical of market research CAGRs — they are often optimistically biased and based on assumptions that may not materialize.

Real Estate Investment Analysis

A home purchased for $350,000 in 2014 and sold for $620,000 in 2024 appreciated at CAGR = (620/350)^(1/10) − 1 = 5.87% per year. Adding rental income to the return calculation (total return CAGR) typically improves the figure by 3–6 percentage points for income-producing properties.

CAGR Limitations and When Not to Use It

CAGR is powerful but has important limitations:

1. Ignores volatility and risk. A 9% CAGR achieved through wild swings is very different from a steady 9% CAGR. Same result, vastly different risk. Use Sharpe ratio to supplement CAGR.

2. Start and end date sensitivity. Measuring S&P 500 CAGR from March 2009 (market bottom) to March 2019 gives ~18%. From December 2007 to December 2017 gives ~10%. Same 10-year length, very different CAGR — cherry-picking start dates is a common misleading tactic used by some financial advisors and fund marketers to make performance look better than it was.

3. Does not account for cash flows. If you add money over time (dollar-cost averaging, 401k contributions), simple CAGR on start/end balance doesn't reflect actual return. Use Internal Rate of Return (IRR) or Money-Weighted Return for accounts with ongoing contributions. For most 401(k) or IRA investors who contribute regularly, their personal rate of return may differ significantly from the fund's reported CAGR.

4. Inflation is not adjusted. A 7% CAGR during 3% inflation = approximately 4% real return. Always clarify whether a CAGR is nominal (before inflation) or real (after inflation) for long-term planning. Use the Fisher equation for precision: Real CAGR = (1 + Nominal CAGR) / (1 + Inflation Rate) − 1.

When to use CAGR: Comparing investment performance, analyzing business growth trends, quickly benchmarking returns across different time periods. When to use IRR instead: Evaluating investments with irregular or multiple cash flows (real estate, private equity, annuities). When to use total return instead: Knowing the absolute percentage gain on a specific investment without time-normalizing it.

Reverse CAGR: Projecting Future Values and Required Starting Amounts

The CAGR formula can be rearranged to answer three types of planning questions:

1. What will my investment be worth? (Future Value)
Formula: FV = BV × (1 + CAGR)^n
Example: $15,000 at 8% CAGR for 20 years = $15,000 × (1.08)²⁰ = $69,914

2. What starting amount do I need? (Present Value)
Formula: PV = FV / (1 + CAGR)^n
Example: To reach $1,000,000 in 25 years at 9% CAGR: PV = 1,000,000 / (1.09)²⁵ = $115,968 needed today

3. How many years does it take?
Formula: n = ln(EV/BV) / ln(1 + CAGR)
Example: $10,000 growing to $40,000 at 8% CAGR: n = ln(4) / ln(1.08) = 1.386 / 0.0770 = 18 years

These reverse-CAGR calculations are used constantly in financial planning, business forecasting, and investment goal-setting. Enter any two of the three variables (beginning value, ending value, years) plus CAGR to solve for the third.

CAGR for Retirement and Long-Term Financial Planning

CAGR is the most important single number in long-term financial planning. The difference between a 6% and 8% CAGR over 30 years is not 2% — it is the difference between $574,000 and $1,006,000 on a $100,000 investment. That 2% gap nearly doubles your outcome. Here is why CAGR matters so much over long horizons:

The power of small CAGR differences over time:

A 401(k) or IRA growing at 9% instead of 7% nearly doubles your ending balance over 30 years. This is why minimizing investment fees (which directly reduce CAGR) and maximizing equity allocation early in your investment horizon are so critical to long-term wealth building.

Common financial goal calculations using CAGR:

• Reaching $1M: $100,000 growing at 8% CAGR reaches $1M in: n = ln(10) / ln(1.08) = 2.303 / 0.0770 = 29.9 years
• College fund: Need $200,000 in 18 years. At 7% CAGR: PV = 200,000 / (1.07)¹⁸ = $57,309 needed today
• Retirement corpus: Saving $500/month from age 25 to 65 (40 years) at 8% CAGR = approximately $1,745,000 at retirement