CAGR Calculator
Calculate the compound annual growth rate (CAGR) — the constant per-year rate that turns an investment's starting value into its ending value. Use it to compare funds, portfolios, or business metrics that grew at uneven annual rates on a level playing field.
About this calculator
CAGR is the geometric per-period growth rate that would have produced the same end value if growth had been smooth and constant. The formula is: CAGR (%) = ((Final Value / Initial Value)^(1 / Years) − 1) × 100. The exponent 1/Years "undoes" the compounding across the holding period to extract an equivalent single-year rate; doubling your money in 5 years is a CAGR of about 14.87%, while tripling it in the same window is about 24.57%. Variables: Initial Value is the starting balance (purchase price including fees, not a notional cost basis), Final Value is the ending balance (current market value or sale proceeds net of taxes/commissions if you want an after-tax CAGR), and Years is the holding period as a positive decimal (3.5 = 42 months). Edge cases: a Final Value below Initial Value yields a negative CAGR; an Initial Value of zero is undefined (you cannot grow from nothing); periods less than one year work with the formula but should be expressed as a fraction (4 months = 0.333 years) and treated with caution because annualising very short-term returns inflates noise. CAGR completely smooths out volatility — two portfolios with identical CAGRs can have radically different drawdowns and risk profiles, so always pair it with a standard-deviation or maximum-drawdown figure when evaluating investments.
How to use
Example 1 — Stock portfolio. You invested $5,000 in an index fund six years ago; it is now worth $9,500. Enter 5000, 9500, 6. Step 1: 9,500 / 5,000 = 1.9. Step 2: 1.9^(1/6) = 1.9^0.1667 ≈ 1.1129. Step 3: (1.1129 − 1) × 100 ≈ 11.29%. Result: 11.29% CAGR. Verify: 5,000 × 1.1129^6 = 5,000 × 1.9 = $9,500 ✓. That is above the long-run S&P 500 average (~10% nominal), so your fund has done well relative to the market. Example 2 — Business KPI. Annual recurring revenue grew from $1.2M three years ago to $2.0M today. Enter 1200000, 2000000, 3. Step 1: 2.0 / 1.2 = 1.6667. Step 2: 1.6667^(1/3) ≈ 1.1856. Step 3: (1.1856 − 1) × 100 ≈ 18.56%. Result: 18.56% CAGR. Verify: 1.2 × 1.1856^3 ≈ 1.2 × 1.6667 ≈ 2.0 ✓. An 18–20% annual ARR growth rate is solid for a series-B SaaS business; below 15% would prompt questions about pricing or sales execution.
Frequently asked questions
What is a good CAGR for a long-term investment portfolio?
Over the long run (20+ years), the S&P 500 has delivered roughly 10% nominal CAGR and about 7% real CAGR after inflation. A diversified portfolio earning above 10% over 10+ years is performing strongly; anything above 12–13% over a long stretch is exceptional and usually involves either concentrated risk or genuine alpha. Growth-stock funds and venture-backed private equity may target 15–20% CAGR but carry substantial drawdown risk and longer lock-ups. The right benchmark depends on your opportunity cost: if you could earn 5% in Treasuries with no risk, the equity-risk premium you need is the CAGR minus 5%. Always compare your CAGR to the appropriate benchmark for the asset class, not against an arbitrary universal threshold.
How is CAGR different from average annual return?
Average annual return (arithmetic mean) sums each year's percentage return and divides by the number of years. CAGR is the geometric mean — the constant rate that produces the actual start-to-end value. The two diverge whenever returns are volatile: gain 50% in year 1 and lose 33% in year 2, and the average return is 8.5%, but your money is exactly back where it started — a CAGR of 0%. The wider the year-to-year swings, the more the arithmetic average overstates true performance, sometimes dramatically. CAGR is what shows up in fund prospectuses (correctly), while the arithmetic average is what shows up in misleading marketing material that wants to look better than reality. For any volatile asset class, trust CAGR.
What are the most common mistakes when using CAGR?
The biggest is annualising very short-term returns — a 10% gain over 2 months annualised becomes 77% per year, which is almost never repeatable and oversells performance. The second is comparing CAGRs over different time periods without adjusting for endpoint sensitivity: a CAGR measured from a market bottom to a market top will dominate one measured peak-to-peak. The third is ignoring volatility — two assets with the same 10% CAGR can have wildly different drawdowns, and the more volatile one is psychologically harder to hold and may be less suitable. The fourth is forgetting that CAGR assumes no contributions or withdrawals during the period; if you added money mid-way, you need money-weighted return (XIRR) instead, which is what your brokerage actually shows you. Finally, CAGR is pre-tax and pre-fee by default — for personal investing decisions, compute net-of-fees and net-of-taxes CAGR to know your real take-home rate.
When should I NOT use CAGR?
Avoid CAGR for periods shorter than ~3 years because short-term endpoint noise dominates the signal — a 1-year CAGR is just the 1-year return, and a 2-year CAGR is heavily influenced by the start and end dates. Do not use CAGR when you made multiple contributions or withdrawals during the holding period; use the money-weighted return (XIRR in spreadsheets) instead, which is what your brokerage uses to show personalised performance. Skip CAGR for businesses with very lumpy growth (one-off acquisitions, regulatory changes, single contract wins) because the smoothed figure hides the underlying step changes; use year-over-year growth rates side-by-side instead. CAGR is also a poor measure for investments with non-financial returns (employee training, brand investments) where the relevant outcomes do not have a dollar-denominated end value. Finally, never use CAGR as the sole investment metric — pair it with a volatility measure (standard deviation, max drawdown) and a risk-adjusted return (Sharpe ratio) for a complete picture.
Can CAGR be used for periods less than one year?
Mathematically yes — express the period as a decimal fraction of a year (4 months = 0.333 years, 18 months = 1.5 years) and the formula still works. But the result is often misleading. Annualising a 10% gain over four months produces a CAGR of (1.10)^3 − 1 ≈ 33.1% per year, which implies the same trajectory continues — almost never the case in practice. Use CAGR over sub-year periods only when you need to compare results across investments held for different lengths and you understand the annualisation is hypothetical, not predictive. For real performance reporting, the standard convention is to use periods of one year or longer; for shorter horizons, just report the absolute return.