CAGR Calculator

What is CAGR?

CAGR (Compound Annual Growth Rate) is a measure of the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

Unlike simple average returns, CAGR accounts for the compounding effect of returns, making it a more accurate measure of investment performance. It smooths out volatility and shows what the average annual return would have been if the investment had grown at a steady rate. For calculating total return including costs, see our ROI Calculator which includes fees and expenses.

How to Use This Calculator

Using the CAGR calculator is simple. Enter your beginning investment value, ending value, and the number of years the investment was held. The calculator instantly shows your CAGR, total return percentage, and total growth amount.

CAGR is particularly useful for comparing investments with different time periods, as it standardizes returns to an annual rate. This makes it easy to see which investment performed better, regardless of how long each was held.

Formula Explained

The CAGR formula is:

Where:

• Ending Value = Final or current value of the investment
• Beginning Value = Initial value of the investment
• n = Number of years

The formula calculates the geometric mean return, which accounts for compounding. This is different from arithmetic mean (simple average), which doesn't account for the compounding effect of returns over time.

Source: Investopedia - Compound Annual Growth Rate (CAGR) Definition and Formula

When to Use This Calculator

Use the CAGR calculator when comparing investment performance, evaluating portfolio returns, or assessing the growth rate of assets over time. It's essential for comparing investments with different time periods, analyzing mutual fund performance, and understanding long-term investment returns. For projecting future growth, use our Investment Growth Calculator to see how your portfolio might grow.

Financial analysts and investors use CAGR to evaluate investment performance, compare different investment options, and communicate returns in a standardized, easy-to-understand format.

Tips for Best Results

• Use accurate values: Ensure your beginning and ending values are accurate, including any dividends or distributions reinvested.
• Compare to benchmarks: Compare your CAGR to relevant benchmarks like the S&P 500 or market averages for your investment type.
• Consider time period: CAGR is most meaningful over longer time periods (5+ years) where it can smooth out short-term volatility.
• Account for all costs: For accurate CAGR, use values that account for fees, taxes, and other costs if comparing to other investments.
• Understand limitations: CAGR assumes steady growth and doesn't show volatility. An investment with high volatility might have the same CAGR as a steady one, but with more risk.
• Use multiple metrics: Combine CAGR with other metrics for a complete picture. Also use our ROI Calculator to see total returns including all costs.

Frequently Asked Questions

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