CAGR Calculator

Smooth Out Your Investment Returns

The Compound Annual Growth Rate (CAGR) is a useful metric for smoothing out the volatility of investment returns over a specific period. It tells you the constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance. It provides a more accurate picture of performance than a simple average.

The CAGR Formula Explained

CAGR = [ (Ending Value / Beginning Value)^(1 / Number of Years) ] - 1

• Ending Value: The value of the investment at the end of the period.
• Beginning Value: The value of the investment at the start of the period.
• Number of Years (n): The duration of the investment period.

How to Use the Calculator

1. Beginning Value: Enter the starting value of the investment.
2. Ending Value: Enter the final value of the investment.
3. Number of Years: Enter the length of the investment period.

Real-World Example

You invested $10,000. After 5 years, your investment is worth $15,000.

• Calculation: CAGR = [ ($15,000 / $10,000)^(1/5) ] - 1
• CAGR = [ 1.5^(0.2) ] - 1
• CAGR = 1.08447 - 1 = 0.08447
• Your Compound Annual Growth Rate is 8.45%.

Frequently Asked Questions (FAQ)

• How is CAGR different from average return? Average return can be misleading. If an investment goes up 50% one year and down 50% the next, the average return is 0%, but you've actually lost 25% of your money. CAGR would correctly show a negative growth rate. It accounts for compounding.
• Does CAGR account for contributions or withdrawals? No, the standard CAGR formula assumes a single lump-sum investment with no additions or subtractions during the period.
• What is CAGR used for? It's excellent for comparing the historical performance of different investments (like two different mutual funds) over the same period, as it provides a single, easy-to-understand growth rate.