CAGR Calculator

CAGR smooths a bumpy path into one rate

It answers a single question: what constant annual rate would take the starting value to the ending value over this period? The formula takes the ending value divided by the beginning value, raised to the power of one over the number of years, minus one. An investment growing from 10,000 to 15,000 over 5 years has a CAGR of about 8.45 percent.

It is not the average of the annual returns

This is the distinction that matters. Gaining 100 percent then losing 50 percent gives an arithmetic average of plus 25 percent and a CAGR of exactly zero, because you finished where you started. The arithmetic mean of returns systematically overstates actual growth whenever there is volatility, and the more volatile the series, the larger the overstatement. CAGR is a geometric mean and reflects what actually happened to the money.

What it deliberately hides

Two investments with identical CAGR can have completely different paths — one steady, one that halved before recovering. CAGR says nothing about volatility, drawdown, or whether you could have tolerated holding it. Pairing it with standard deviation or maximum drawdown gives the shape the single number omits.

Start and end dates can be chosen to flatter

Because CAGR depends only on two points, moving either one changes the story completely. A fund measuring from the bottom of a crash shows a spectacular rate that says more about the starting point than the management. Any CAGR quoted without its period is not a claim you can evaluate, and a period that begins at a conspicuous low is worth questioning.

Where it applies beyond investing

Revenue growth, user growth, market size and any quantity compared across multiple years. It is the correct way to compare growth over different time spans, since a 60 percent gain over three years and a 25 percent gain over one are not comparable until both are annualised.

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