How do you calculate CAGR?

Divide the ending value by the beginning value, raise the result to the power of 1 divided by the number of years, then subtract 1. For $10,000 growing to $18,000 over 5 years: (18,000 ÷ 10,000)^(1/5) − 1 = 12.47% a year.

It depends entirely on the asset and period. Broad stock-market returns have historically averaged roughly 7–10% a year before inflation over long stretches, so a CAGR well above that usually means either higher risk or a favourably chosen time window.

Is CAGR the same as average annual return?

No, and the difference matters. A simple average overstates results whenever returns vary: +50% then −50% averages to zero, but the actual CAGR is about −13.4%. CAGR reflects compounding; the average does not.

Can I use CAGR if I added money over time?

No. CAGR assumes one lump sum with no contributions or withdrawals. If you invested gradually, use a money-weighted return such as IRR, which accounts for the timing and size of each cash flow.

CAGR Calculator

Compound annual growth rate between any two values over any period.

Quick answer

Compound annual growth rate is (ending value ÷ beginning value)^(1 ÷ years) − 1 — the steady yearly rate equivalent to an investment's actual result. It reflects compounding, so it is always lower than a simple average of annual returns whenever those returns varied.

Investment growth

Beginning value

Ending value

Years held

yrs

CAGR

12.47%

compound annual growth rate

Total return

80.0%

Growth multiple

1.8×

Gain

$8,000

Doubling time at this rate

5.9 yrs

The smoothed annual rate

CAGR is the constant yearly rate that would take a starting value to an ending value over a given period: (ending ÷ beginning)^(1 ÷ years) − 1. It answers a specific question — what steady growth rate is equivalent to this messy real-world result — which makes it the standard way to compare investments over different time spans.

Worked example: $10,000 to $18,000 in 5 years

The growth multiple is 1.8, so CAGR is 1.8^(1/5) − 1 = 12.47% a year. Total return is 80%, which sounds far more impressive until annualized. At that rate the money would double in about 5.9 years — a useful sanity check, and close to what the Rule of 72 estimates (72 ÷ 12.47 ≈ 5.8).

Why not just use the average?

Because averaging annual returns overstates what you actually earned. A year of +50% followed by a year of −50% averages to zero, but $100 becomes $150 and then $75 — a real CAGR of about −13.4%. Volatility always drags compounded results below the simple average, which is why CAGR, not the mean, is the honest measure of what an investment delivered.

What CAGR hides

It is a smoothed line drawn between two endpoints, so it says nothing about the path. Two investments with identical CAGR can differ wildly in risk: one grinding upward, the other halving before it recovers. CAGR is also acutely sensitive to the dates you pick — start or end a measurement near a market peak or trough and the number changes dramatically. Always check the period, not just the rate.

Where it breaks down

CAGR assumes a single lump sum with no cash flowing in or out. If you added or withdrew money along the way, CAGR on the total balance is meaningless — use money-weighted return (IRR) instead. It also can't handle a beginning value of zero or a negative ending value, and for dividend-paying assets you must decide up front whether the ending value includes reinvested dividends or not.

Frequently asked questions

How do you calculate CAGR?: Divide the ending value by the beginning value, raise the result to the power of 1 divided by the number of years, then subtract 1. For $10,000 growing to $18,000 over 5 years: (18,000 ÷ 10,000)^(1/5) − 1 = 12.47% a year.
What is a good CAGR?: It depends entirely on the asset and period. Broad stock-market returns have historically averaged roughly 7–10% a year before inflation over long stretches, so a CAGR well above that usually means either higher risk or a favourably chosen time window.
Is CAGR the same as average annual return?: No, and the difference matters. A simple average overstates results whenever returns vary: +50% then −50% averages to zero, but the actual CAGR is about −13.4%. CAGR reflects compounding; the average does not.
Can I use CAGR if I added money over time?: No. CAGR assumes one lump sum with no contributions or withdrawals. If you invested gradually, use a money-weighted return such as IRR, which accounts for the timing and size of each cash flow.

Sources & methodology