What CAGR is for
CAGR answers one question: at what steady annual rate would this have had to grow to get from where it started to where it ended? That makes it the fairest way to compare two things that ran for different lengths of time - a fund held for three years against one held for eleven.
It is used well beyond investing. Revenue, subscriber counts, traffic and headcount are all quoted as CAGR for the same reason: a single rate is comparable, and a pair of end points is not.
Where it misleads
CAGR is a smoothed rate, not a description of what happened. It hides every drawdown along the way, so an investment with a 14% CAGR and a 60% fall in the middle looks identical to one that never fell at all.
It is also extremely sensitive to the two dates you pick. Starting a measurement at a market low and ending it at a high produces an impressive CAGR that says more about the dates than about the investment, which is worth remembering whenever somebody quotes one at you.
Frequently asked questions
- What is the CAGR formula?
- CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. An investment that goes from 100,000 to 200,000 in five years has a CAGR of 2^(1/5) − 1, which is 14.87% a year.
- Is CAGR the same as the average yearly return?
- No, and the difference is the point. Returns of +50% then −50% average to zero, but leave you with 75% of what you started with - a CAGR of −13.4% a year. CAGR is the rate that actually connects the two end points; the simple average is not.
- What does CAGR not tell you?
- Anything about the path. An investment that halved and then quadrupled has exactly the same CAGR as one that grew smoothly to the same value, and they are not the same investment. CAGR deliberately smooths out volatility, so it should be read alongside how bumpy the ride actually was.
- Can CAGR be negative?
- Yes. If the ending value is lower than the starting value the rate is negative, and this calculator shows it as such rather than hiding the sign.
- How accurate is this?
- The arithmetic is exact and uses decimal rather than floating-point maths, so results are not skewed by rounding. Where a calculation depends on legislation, the page shows which rule year it used, when those rules were last checked and the official source they came from. Results are estimates for information, not advice.
- Are my figures sent anywhere?
- No. Every calculation runs inside your browser. Nothing you type - salary, income, dates or amounts - is sent to our servers, stored or logged. You can disconnect from the network after the page loads and the calculator keeps working.