CAGR Calculator
Calculate the Compound Annual Growth Rate (CAGR) of your investments. CAGR shows the smoothed annual return over time, perfect for comparing investment performance.
Frequently Asked Questions
What is CAGR and why is it important?
CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it increased at a steady rate every year. For example, if you invested $10,000 and it became $25,000 after 5 years, your CAGR is 20.1%—meaning your investment grew by 20.1% per year on average, compounded. CAGR is important because: 1) It smooths out volatility (ignores ups and downs, just looks at start/end values), 2) It allows you to compare different investments over different time periods, 3) It shows the true 'average' annual return (more accurate than simple average), and 4) It helps you project future growth. A 10% CAGR means your money doubles every 7.2 years (Rule of 72).
How is CAGR different from average annual return?
CAGR accounts for compounding, while simple average return doesn't. Example: You invest $100. Year 1: +50% ($150). Year 2: -20% ($120). Simple average = (50% + -20%) / 2 = 15% annual return. But CAGR = ((120/100) ^ (1/2)) - 1 = 9.5% annual return. The difference? Simple average says you gained 15%/year, but your money only grew from $100 to $120 (20% total), which is 9.5%/year compounded. CAGR is more accurate for investments because it reflects the actual growth rate. Use CAGR when: 1) Comparing investment performance, 2) Projecting future growth, or 3) Evaluating multi-year returns. Use simple average when: tracking individual year performance.
What is a good CAGR for stock investments?
For stock investments: <5% = Below average (high-yield savings does 4-5%), 5-10% = Average (bonds/diversified portfolios), 10-12% = Good (matches S&P 500 historical average), 12-20% = Excellent (outperforms market), >20% = Outstanding (but hard to sustain long-term). Context matters: 1) Time period—20%+ CAGR is common in bull markets (2009-2021) but rare over 20+ years, 2) Risk—high CAGR stocks are often volatile (tech, crypto), 3) Comparison—15% CAGR with 40% drawdowns may be worse than 10% CAGR with 15% drawdowns. Warren Buffett's Berkshire Hathaway achieved 19.8% CAGR from 1965-2022—incredibly rare. Most investors should target 8-12% CAGR long-term through diversified index funds.
Can I use CAGR to predict future investment returns?
Yes, but with caution. CAGR is useful for projections assuming your investment continues growing at the same rate. For example, if your portfolio had a 12% CAGR over 10 years, you can estimate it'll be worth X in 10 more years at 12% CAGR. However, limitations: 1) Past performance doesn't guarantee future results—a stock with 20% CAGR could crash, 2) Market conditions change—low rates (2009-2021) boosted stocks; higher rates reduce returns, 3) Mean reversion—investments with very high CAGR often regress toward average, and 4) Volatility isn't captured—two investments with same CAGR can have very different risk profiles. Use CAGR for projections but: 1) Be conservative (use 7-8% instead of 10-12% for safety), 2) Consider worst-case scenarios, 3) Diversify to reduce risk.
How do I calculate CAGR for investments with contributions?
Standard CAGR doesn't work if you're adding money regularly (like 401k contributions). For that, use XIRR (Excel function) or Time-Weighted Return, which accounts for cash flows. However, you can calculate CAGR for: 1) Lump sum investments (one-time investment, no additions), 2) Portfolio performance overall (total value start vs end, ignoring contributions), or 3) Specific holdings (e.g., bought $10k Apple stock, now worth $30k). If you're adding $500/month to investments, your portfolio growth includes both contributions and returns—CAGR would overstate returns. Instead, calculate: (Ending Value - Total Contributions) / Total Contributions = Return on your money. Then use XIRR for precise annual return. Most 401k providers show Time-Weighted Return which properly accounts for contributions—that's your true CAGR.
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Financial Disclaimer
This calculator is provided for educational and informational purposes only. The results are estimates based on the information you provide and should not be considered as financial, legal, or tax advice.
Actual results may vary based on your specific circumstances, market conditions, and other factors. Always consult with qualified financial, legal, and tax professionals before making any financial decisions.
We make no guarantees about the accuracy, completeness, or reliability of the calculations. Use this tool at your own risk.