CAGR Calculator - Compound Annual Growth Rate Calculator
Calculate the Compound Annual Growth Rate (CAGR) of your investments. Understand your average annual returns with our free CAGR calculator
CAGR Calculator
Results
How to Use This Calculator
Beginning Value
Enter the initial investment amount or starting value of your asset
Ending Value
Enter the final value of your investment after the specified period
Number of Years
Enter the investment period in years (can include decimals for partial years)
Calculate
Click the calculate button to determine the CAGR of your investment
Understanding CAGR (Compound Annual Growth Rate)
CAGR is a useful measure that represents the steady rate of return of an investment over a given time period. It describes the rate at which an investment would have grown if it had grown at a steady rate each year.
What is Compound Annual Growth Rate?
CAGR is the rate of return required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested.
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Why Use CAGR?
CAGR smooths out volatility of year-by-year growth rates, making it easier to compare investments or evaluate performance over time.
CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1
Understanding Your Results
The CAGR calculator provides three key metrics to help you understand your investment performance over time.
CAGR (Compound Annual Growth Rate)
This is the mean annual growth rate of your investment over the specified period. It represents a smoothed annualized return.
Total Growth
This shows the actual dollar amount your investment has gained (or lost) over the specified period.
Growth Percentage
This represents the total percentage increase (or decrease) of your investment over the specified period.
Important Considerations and Limitations
While CAGR is a useful tool for measuring investment performance, it's important to understand its limitations.
1. Doesn't Reflect Volatility
CAGR smooths out the investment's performance over time, ignoring volatility and fluctuations that occurred during the period.
2. Assumes Constant Growth
CAGR implies steady growth each year, which rarely happens in real-world investments.
3. Historical, Not Predictive
Past performance does not guarantee future results. High historical CAGR doesn't ensure future performance.
Frequently Asked Questions (FAQ)
Q: What is CAGR and why is it important?
A: CAGR stands for Compound Annual Growth Rate. It represents the mean annual growth rate of an investment over a specified period, providing a smoothed annualized growth rate for easier comparison.
Q: How is CAGR different from average annual return?
A: CAGR accounts for the effects of compounding, while average annual return is a simple arithmetic mean. CAGR provides a more accurate representation of growth over time.
Q: What are the limitations of using CAGR?
A: CAGR doesn't reflect investment risk or volatility, assumes constant growth rate, can be manipulated by time periods, and historical CAGR doesn't guarantee future performance.
Q: Can CAGR be negative?
A: Yes, CAGR can be negative when the ending value is less than the beginning value. This indicates a decline in value over the measured period.
Q: How can I use CAGR in investment analysis?
A: CAGR is useful for comparing different investments, benchmarking against market indices, evaluating business metrics, and setting realistic expectations for future performance.
Q: Is CAGR better than other return metrics?
A: CAGR is useful but should be used alongside other metrics. It's best for understanding long-term growth trends but doesn't show volatility or risk.