Key takeaways
- CAGR = ((End ÷ Begin)^(1/n) − 1) × 100.
- n is the number of years between the start and end values, not the number of data points.
- CAGR is not the same as averaging each year's percentage growth.
- CAGR describes past performance only — it doesn't predict future growth.
In this guide
What is CAGR?
Real investments rarely grow by the exact same percentage every year — some years are up, some are down. CAGR, or compound annual growth rate, answers a simpler question: if the investment had grown at one steady rate every year instead, what would that rate have been? It's a way to compare growth across different investments and time periods fairly.
Why does CAGR matter?
A simple average of yearly percentage changes can be badly misleading, especially after a big loss. CAGR corrects for that by accounting for compounding, giving a truer picture of overall growth.
An investment that gains 50% one year and then loses 50% the next isn't back to even — it's down about 13.4% overall, because the loss is calculated on a larger balance than the gain was.
The formula
| Symbol | What it means | Example |
|---|---|---|
| Begin | Starting value of the investment | $8,000 |
| End | Ending value after the growth period | $15,000 |
| n | Number of years between the two values | 6 |
| CAGR | Equivalent steady annual growth rate | ≈11.05% |
How to calculate CAGR step by step
- 1Divide the ending value by the beginning value. This gives the total growth factor.
- 2Raise that result to the power of `1 ÷ n`. This spreads the growth evenly across each year.
- 3Subtract 1. This converts the growth factor into a growth rate.
- 4Multiply by 100. The result is CAGR, expressed as a percentage.
Try your own beginning value, ending value, and time period in the calculator below.
Try it yourself
Pre-filled with the example — change any value.
Common mistakes to avoid
- Using the wrong number of years. n should be the number of years between the start and end points, not the number of data points you have.
- Treating CAGR as a guaranteed future rate. CAGR describes the past growth between two points — it doesn't predict what happens next.
- Assuming steady growth actually happened. CAGR is a smoothed number; it hides any ups and downs that occurred year to year.
Tips and tricks
- CAGR is closely related to the ROI calculator, which measures total return without spreading it evenly across years — compare the two to see the effect of time.
- It also answers the reverse question of the future value calculator: instead of projecting a rate forward, CAGR extracts the rate from two known values.
- For comparing compounding at different frequencies within a single year, see the compound interest calculator.
Where you'll use it in real life
- Investing: comparing the historical performance of stocks, mutual funds, or index funds over multiple years.
- Business growth: measuring a company's steady annual growth in revenue or users.
- Savings plans: checking whether a long-term savings goal is on track compared to a target growth rate.
- Comparing options: CAGR puts investments held for different lengths of time on the same footing.
Quick summary
CAGR is ((End ÷ Begin)^(1/n) − 1) × 100 — it finds the one steady annual rate that connects a starting and ending value over n years. It's more accurate than a simple average because it accounts for compounding. Use the calculator above to find the CAGR for your own numbers.
Worked example
An investment was worth $8,000 six years ago and has grown to $15,000 today.
- 01CAGR = ((End / Begin)^(1/n) - 1) × 100
- 02= (($15,000 / $8,000)^(1/6) - 1) × 100
- 03= (1.875^0.1667 - 1) × 100
- 04= (1.1105 - 1) × 100
- 05CAGR = 11.05%
These numbers are pre-filled in the calculator above.
Frequently asked questions
How is CAGR different from average annual return?
A simple average adds up each year's percentage growth and divides by the number of years, which ignores compounding. CAGR instead finds the single steady rate that compounds from the start value to the end value, which is usually a more accurate picture of overall growth.
Can CAGR be negative?
Yes. If the ending value is lower than the beginning value, CAGR will be negative, showing an average yearly decline.
Does CAGR show what happened every single year?
No. CAGR only shows the smoothed, equivalent steady rate between the start and end points — it hides any ups and downs that happened along the way.
What's the difference between CAGR and ROI?
ROI shows the total percentage gain over the whole period, with no regard for how many years it took. CAGR spreads that same growth evenly across each year, which makes it easier to compare investments held for different lengths of time.
