CAGR — Compound Annual Growth Rate
CAGR measures the mean annual growth rate of an investment over a specified period longer than one year. It smooths out year-to-year volatility to give you a single, comparable rate of return.
The Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1
Where n = number of years.
Example
An investment grows from $5,000 to $12,000 over 8 years:
CAGR = (12,000 / 5,000)^(1/8) − 1 CAGR = (2.4)^(0.125) − 1 CAGR ≈ 11.5% per year
Why CAGR Matters
CAGR is used to compare the performance of different investments, benchmark against index returns, and project future portfolio values. It removes the distortion caused by volatile interim periods.
Related Tools
- CAGR Calculator — Compute any start/end value in seconds.
- Compound Interest Calculator — Project future value from a known rate.
- ROI Calculator — Measure total return without considering time.