CAGR Calculator
Calculate the Compound Annual Growth Rate of an investment over multiple years.
Cómo funciona
CAGR (Compound Annual Growth Rate) smooths an investment's growth over multiple years into a single, constant annual rate — answering the question "what steady yearly growth rate would have produced this same ending value?", even though actual year-to-year returns almost always fluctuate.
The formula is CAGR = ((Final value ÷ Initial value)^(1/years) − 1) × 100. For an investment growing from $10,000 to $18,000 over 5 years: (18000/10000)^(1/5) = 1.8^0.2 ≈ 1.1247, so CAGR ≈ 12.47% — the single constant annual rate that would grow $10,000 into exactly $18,000 over exactly 5 years.
CAGR is different from a simple average of yearly returns, and the difference matters: an investment that grows 50% one year and falls 50% the next has an average return of 0% (the two numbers average to zero), but actually ends up 25% below where it started (1.5 × 0.5 = 0.75), since losses and gains don't offset symmetrically once compounding is involved. CAGR correctly reflects that real, compounded outcome, while a simple average return would misleadingly suggest no change.
This makes CAGR the standard way to fairly compare investments held for different lengths of time, or with volatile year-to-year performance — a fund that grew steadily and one that had wild swings but ended at the same final value can have identical CAGR, even though their year-to-year experience was very different.
One important limitation: CAGR describes only the starting and ending points, smoothing over everything that happened in between — it says nothing about volatility, drawdowns, or risk along the way, so two investments with identical CAGR can have been very different experiences to actually hold through the full period.
CAGR is widely used beyond individual stock or fund performance: business revenue growth, population growth, and any other quantity that compounds over multiple periods can be summarized the same way, using the identical formula regardless of what's actually growing.
When comparing CAGR figures across sources, it's worth checking that both are calculated over comparable time periods — a 3-year CAGR and a 10-year CAGR for the same investment can look very different even though they're describing overlapping performance, since the shorter window can be disproportionately influenced by a particularly strong or weak stretch that gets smoothed out over a longer horizon.
How is CAGR different from average annual return?
CAGR accounts for compounding, so it reflects the actual constant rate that would produce the same ending value — a simple average of yearly returns doesn't.
Why can a simple average of returns be misleading?
Because gains and losses don't offset symmetrically once compounding is involved — a 50% gain followed by a 50% loss averages to 0% but actually leaves you 25% below where you started, which CAGR correctly reflects and a simple average doesn't.
Does CAGR account for risk or volatility?
No — CAGR only looks at the starting and ending values, smoothing over any volatility that happened along the way. Two investments with identical CAGR can have had very different, and very differently risky, paths to get there.
Can CAGR be negative?
Yes — if the final value is lower than the initial value, CAGR is negative, reflecting an average annual decline over the period.
Is CAGR the same as the interest rate on a compound interest account?
Conceptually yes — CAGR is essentially solving the compound interest formula backward, finding the implied constant rate from known starting and ending values instead of projecting forward from a known rate.
How is CAGR useful for comparing two different investments?
It puts investments held for different time periods on the same annualized footing, making a fair side-by-side comparison possible even when the raw total returns and holding periods differ.
Can CAGR be used for something other than investments?
Yes — business revenue growth, user or population growth, and any other quantity that compounds over multiple time periods can be summarized with the same CAGR formula.
Why do the initial value and years both need to be greater than zero?
The formula involves dividing by the initial value and taking a root based on years — both operations are undefined or meaningless if either value is zero or negative.
Why might a 3-year CAGR differ a lot from a 10-year CAGR for the same investment?
A shorter window can be disproportionately shaped by one particularly strong or weak period, while a longer horizon smooths that same period into a broader average — always compare CAGR figures calculated over the same length of time.
Does a higher CAGR always mean a better investment?
Not necessarily — CAGR alone ignores risk, volatility, and how consistently the returns arrived, so it should be considered alongside those factors rather than as the sole measure of investment quality.