CAGR Calculator
Category: Portfolio & PerformanceCalculate the Compound Annual Growth Rate (CAGR) to measure the mean annual growth rate of an investment over a specified time period longer than one year
Investment Parameters
CAGR Results
Growth Visualization
Comparative Analysis
Investment Scenarios
Required Growth Rate
Based on your current CAGR of 14.87%, this shows how long it would take to multiply your initial investment.
Future Value Projection
Projected future value of your initial investment if the current CAGR continues.
Rule of 72 Analysis
The Rule of 72 provides a quick estimate of how long it takes to double your money at a given interest rate.
Understanding CAGR (Compound Annual Growth Rate)
CAGR measures the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
What CAGR Tells You
- Smoothed Rate: CAGR smooths out investment returns so that they may be more easily understood compared to alternative metrics.
- Actual Reality: Returns on investments rarely experience steady growth year to year. The real performance of most investments is uneven over time.
- Comparison Tool: CAGR can be used to compare investments with different time horizons or to benchmark an investment against alternative opportunities.
- Not Volatility Sensitive: CAGR does not account for investment risk or volatility, which can vary significantly between different investments.
CAGR Limitations
- Ignores Volatility: CAGR calculation doesn't reflect the volatility of an investment, which is an important factor in assessing risk.
- Assumes Reinvestment: The formula assumes that all returns are reinvested at the end of each period.
- Past Performance: CAGR based on historical data doesn't guarantee future results.
- No Cash Flows: The basic CAGR calculation doesn't account for additional deposits or withdrawals during the investment period.
CAGR Formula
The Compound Annual Growth Rate (CAGR) is calculated using the formula:
This formula represents the year-over-year growth rate of an investment over a specified time period.
Common Applications of CAGR
Portfolio Performance
Measure and compare the performance of different investment portfolios over time to make informed decisions.
Market Analysis
Compare growth rates of different markets, sectors, or indices to identify trends and opportunities.
Business Growth
Evaluate the growth rate of business metrics like revenue, profit, or customer base to assess performance.
Financial Planning
Project future values of investments to plan for financial goals like retirement or education funding.
What this calculates
Compound annual growth rate — the smoothed yearly rate between two values.
- Formula
CAGR = (ending ÷ beginning)^(1 ÷ years) − 1- Worked example
- Growing 100,000 to 180,000 over 5 years is (1.8)^(1/5) − 1 ≈ 12.5% a year.
- When to use it
- To compare investments held for different lengths of time on one basis.
- Common mistake
- CAGR hides the path entirely. Two investments with the same CAGR can have wildly different drawdowns along the way.