What Is CAGR?
CAGR, or Compound Annual Growth Rate, shows the average annual growth rate of an investment over a period of time, assuming the growth happened smoothly.
CAGR
14.52%
per year
Why CAGR matters
Compare investments
Easily compare the performance of different investments over the same time period.
Understand long-term growth
See the true power of compounding over multiple years in a single annualized number.
Smooth out volatility
CAGR turns uneven yearly returns into a smooth, easy-to-understand rate of growth.
Think in annual terms
Make better decisions by looking at performance on a consistent annual basis.
Interactive CAGR Calculator
Adjust the values to see how CAGR changes.
CAGR
14.52%
per year
Total gain
$9,700
Total return
97.00%
CAGR = (Ending Value / Starting Value) ^ (1 / Years) − 1
Visual example
An investment growing at a steady CAGR would look like this:
$10,000 grows to $19,700 in 5 years
Quick formula
CAGR = (Ending Value / Starting Value) ^ (1 / Years) − 1Where:
- Ending Value = final value of the investment
- Starting Value = initial value of the investment
- Years = length of the investment period
Real-world example
If an investment grows from $10,000 to $19,700 over 5 years, the total return is 97%. But the CAGR is about 14.52% per year.
CAGR helps us understand the average yearly growth rate, even if the actual returns were bumpy.
- Start
- $10,000
- End
- $19,700
- Total Return
- 97.00%
- CAGR
- 14.52%per year
Common mistakes
Not the same as average return
CAGR includes compounding. A simple average of yearly returns can give a misleading result.
Growth is not always smooth
CAGR is a smoothed number. Actual yearly returns can be much higher or lower.
Does not include risk
Two investments can have the same CAGR but very different volatility and drawdowns.
Not ideal for cash flows
CAGR is best for beginning and ending values. For irregular cash flows, XIRR is more appropriate.
CAGR vs other metrics
| Metric | Best used for | Includes compounding? | Handles cash flows? |
|---|---|---|---|
| CAGR | Long-term performance comparison | Yes | No |
| Total Return | Overall gain over a period | Yes | No |
| Average Annual Return | Simple average of yearly returns | No | No |
| XIRR (IRR) | Investments with irregular cash flows | Yes | Yes |
Questions people ask
What is a good CAGR?
There is no universal “good” number, because it depends on the asset, the time period, and the risk taken. A higher CAGR is not automatically better if it came with much larger swings. CAGR is most useful for comparing investments over the same period rather than judging one in isolation.
Can CAGR be negative?
Yes. If the ending value is lower than the beginning value, the CAGR is negative, showing the average annual rate at which the investment declined over the period.
Is CAGR the same as annual return?
Not exactly. CAGR is a smoothed, annualized rate assuming steady compounding. A single year's actual return can be very different, and a simple average of yearly returns can differ from CAGR because it ignores compounding.
Does CAGR include dividends?
It depends on the values you use. If your beginning and ending values reflect reinvested dividends (a total-return basis), then CAGR includes them. If you only use price values, it does not.
Is CAGR inflation-adjusted?
Not by default. Standard CAGR is a nominal figure. To see growth in today's purchasing power, you would calculate it from inflation-adjusted (real) values instead.
When should I not use CAGR?
CAGR is best for a single beginning and ending value with no cash flows in between. When money is added or withdrawn at irregular times, a measure like XIRR is usually more appropriate.
See CAGR in context
Use Rionux calculators to explore how returns, time, contributions, and inflation affect long-term outcomes.
Rionux provides educational content and tools only. This is not financial advice.