CAGR Calculator
Calculate the compound annual growth rate (CAGR) between a beginning and ending value, and see why it beats a simple average.
How it works
CAGR = (ending value ÷ beginning value)^(1 ÷ years) − 1
CAGR is the single steady rate that would take your beginning value to your ending value over the period, as if it grew smoothly every year. It is a geometric average, so it correctly accounts for compounding — unlike a simple average, which just divides the total return by the years and always reads too high. Use CAGR to compare investments held for different lengths of time on the same footing.
Worked example
$10,000 that grows to $20,000 over 10 years has a CAGR of (20,000 ÷ 10,000)^(1 ÷ 10) − 1 = 2^0.1 − 1 ≈ 7.18% a year. The simple average — 100% total ÷ 10 years = 10% — overstates the real compounded rate.
Frequently asked questions
Why is CAGR lower than the simple average?
Because compounding means later gains build on earlier ones, a lower steady rate reaches the same endpoint. The simple average ignores that and always comes out higher, so it flatters performance.
Does CAGR account for volatility?
No. It only uses the start and end values, so two investments with the same CAGR can have wildly different rides in between. Standard deviation and the Sharpe ratio capture the bumpiness.
Can CAGR be negative?
Yes — if the ending value is below the beginning value, CAGR is negative, showing the steady annual rate of loss over the period.
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Educational estimate, not investment or tax advice. Returns are never guaranteed and past performance does not predict the future. Confirm with a licensed advisor.