How to calculate CAGR
CAGR, or compound annual growth rate, is the single smoothed rate that takes an investment from its starting value to its ending value over a given period. This CAGR calculator finds it: enter the initial value, the final value, and the number of years, and it returns the annualized growth rate along with the total return and the growth multiple. Switch to project mode to grow a value forward at a rate you choose.
How to use it
- Enter the initial value (what you started with).
- Enter the final value (what it grew to).
- Enter the number of years between the two.
The result updates as you type. In project mode you enter a starting value and a target CAGR instead, and watch the value grow year by year on the chart.
The CAGR formula
Why CAGR beats a simple average return
CAGR accounts for compounding, so it is the honest annual rate that actually gets you from start to end. A plain average of yearly returns ignores compounding and volatility, and it usually overstates real growth.
For example, if an investment gains 50% in year one and loses 33% in year two, the simple average is +8.5%, but your money is exactly where it started (150 × 0.67 = 100). The CAGR is 0%. Doubling your money in five years is a 14.87% CAGR, not the 20% a naive "100% ÷ 5 years" suggests.
Use CAGR to compare investments over different time frames on an apples-to-apples basis. A fund that returned 80% over 6 years (CAGR ~10.3%) underperformed one that returned 60% over 4 years (CAGR ~12.5%).
How to interpret CAGR correctly
CAGR smooths out the bumps, which is both its strength and its limitation:
- It does not mean the investment grew at that rate every year. A 12% CAGR might include years of +25% and years of -10%.
- It hides volatility. Two investments with the same CAGR can have very different risk profiles. One might be a smooth bond ladder; the other a volatile stock.
- It is backward-looking. A historical CAGR tells you what happened, not what will happen. Do not use past CAGR as a guaranteed future projection.
Project mode: growing a value forward
Switch to project mode when you have a rate in mind and want to see where a value lands. The calculator applies the CAGR each year and charts the path, showing the future value and total growth.
Use project mode to answer "what if" questions: if this fund continues at its historical CAGR, where does my investment end up in 10 years?
When not to use CAGR
CAGR assumes a single amount invested once and left alone. It does not apply when:
- You add money over time (monthly contributions). Use the SIP calculator or the compound interest calculator instead, and XIRR for the true return on irregular cash flows.
- You need to understand risk. CAGR tells you nothing about drawdowns or volatility. Two funds with a 10% CAGR may have very different worst-year losses.
- The period is very short. A 1-year "CAGR" is just that year's return and says nothing about sustainability.
To project a lump sum forward with compounding details (frequency, inflation), use the investment calculator.
Frequently asked questions
When should I use Calculate CAGR vs Project value?
Use Calculate CAGR when you have historical data (a start value, end value, and time) and want the annualized rate. Use Project value when you have a target CAGR and want to see how your money grows year by year into the future.
Why is CAGR different from the average annual return?
CAGR accounts for compounding, so it is the honest rate that actually gets you from start to end. A simple average ignores compounding and volatility — if a fund gains 50% then loses 33%, the average is +8.5% but the CAGR is 0% (your money is unchanged). Always use CAGR for comparison.
Can CAGR be negative?
Yes. If the final value is less than the initial value, CAGR will be negative, representing an annualized loss. This is common for investments measured during or after a market downturn.
Is a higher CAGR always better?
Not necessarily. CAGR hides volatility and risk. A fund with 12% CAGR that had a -40% drawdown year may be unsuitable for someone who needs the money soon. Always consider CAGR alongside maximum drawdown, standard deviation, or Sharpe ratio for a complete picture.
Can I use CAGR for SIP or recurring investments?
No. CAGR assumes a single lump sum invested once and left alone. For recurring investments at different times, XIRR (extended internal rate of return) is the correct measure. Use the SIP calculator to project recurring contributions.
What is a good CAGR?
It depends on the asset and risk. Global equity indices have delivered 8–10% CAGR over decades. Bonds typically 4–6%. Real estate 3–5% (price appreciation only). Any fund claiming sustained 20%+ CAGR deserves skepticism — very few achieve it over 10+ years.