What is a good CAGR for investments?

A good CAGR depends on the asset class and the level of risk involved. Historically, the S&P 500 has delivered a CAGR of roughly 10% before inflation. A CAGR above this benchmark may be considered strong, though higher returns typically come with higher risk.

Can CAGR be negative?

Yes. If your ending value is lower than your beginning value, the CAGR will be negative, indicating that your investment lost value on a compounded annual basis over the measurement period.

Is CAGR the same as average annual return?

No. CAGR accounts for compounding and provides a smoothed growth rate, whereas the simple average annual return is the arithmetic mean of individual yearly returns. CAGR is generally lower than the simple average when returns are volatile.

How to Calculate CAGR

4 min readInvesting

Compound Annual Growth Rate (CAGR) smooths out the volatility of periodic returns into a single annualized number, making it the go-to metric for comparing investments over time. Whether you are evaluating a mutual fund, a business revenue trend, or your personal portfolio, CAGR tells you the steady rate at which your money would have had to grow each year to go from its beginning value to its ending value.

Quick Steps

1
Enter the beginning value
Input the starting value of your investment at the beginning of the period.
2
Enter the ending value
Input the final value of your investment at the end of the measurement period.
3
Specify the time period
Enter the number of years between the beginning and ending values.
4
Calculate CAGR
The tool applies the CAGR formula and returns the compound annual growth rate as a percentage.
5
Compare with benchmarks
Use the result to compare your investment's growth against market indices or alternative opportunities.

CAGR Calculator

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Understanding CAGR

CAGR stands for Compound Annual Growth Rate. Unlike a simple average of yearly returns, CAGR factors in compounding, meaning it assumes that each year's growth is reinvested and earns returns in subsequent years. This makes CAGR a more accurate representation of real-world investment growth. It is widely used in finance to compare the historical performance of stocks, bonds, funds, and even business metrics like revenue or earnings.

The CAGR Formula

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

Example:
  Beginning Value: $10,000
  Ending Value:    $19,500
  Period:          5 years

  CAGR = ($19,500 / $10,000) ^ (1/5) - 1
       = 1.95 ^ 0.2 - 1
       = 0.1431
       = 14.31%

When to Use CAGR vs. Other Metrics

Use CAGR when you want a single, smoothed growth rate over multiple years for comparison purposes.
Use simple average return when you need a quick estimate and the volatility between years is low.
Use IRR (Internal Rate of Return) when there are multiple cash flows at irregular intervals, such as additional contributions or withdrawals.
Use time-weighted return when evaluating a portfolio manager's skill independently of cash flow timing.

Limitations of CAGR

CAGR is a useful simplification, but it has limitations. It masks year-to-year volatility, so two investments can share the same CAGR yet carry very different levels of risk. It also assumes a constant growth rate, which rarely occurs in practice. For a fuller picture, pair CAGR with measures of volatility such as standard deviation or maximum drawdown. Additionally, CAGR does not account for cash flows during the period, so it works best for lump-sum investments.

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Frequently Asked Questions

What is a good CAGR for investments?: A good CAGR depends on the asset class and the level of risk involved. Historically, the S&P 500 has delivered a CAGR of roughly 10% before inflation. A CAGR above this benchmark may be considered strong, though higher returns typically come with higher risk.
Can CAGR be negative?: Yes. If your ending value is lower than your beginning value, the CAGR will be negative, indicating that your investment lost value on a compounded annual basis over the measurement period.
Is CAGR the same as average annual return?: No. CAGR accounts for compounding and provides a smoothed growth rate, whereas the simple average annual return is the arithmetic mean of individual yearly returns. CAGR is generally lower than the simple average when returns are volatile.