CAGR Calculator

How the CAGR Calculator Works

The CAGR calculator (Compound Annual Growth Rate) computes the constant annual rate at which an investment grows from its beginning value to its ending value over a given number of years. Formula: CAGR = (Ending Value / Beginning Value)^(1/Years) − 1, expressed as a percentage.

Example: An investment grows from $10,000 to $18,500 over 8 years. CAGR = ($18,500 / $10,000)^(1/8) − 1 = (1.85)^(0.125) − 1 = 1.0801 − 1 = 8.01% CAGR. This means the investment grew at a steady 8.01% per year compounded to reach $18,500. The actual annual returns may have varied wildly — CAGR is the smoothed equivalent rate.

Investment Growth Calculator: Using CAGR to Project Returns

CAGR works in reverse to project future values: Future Value = Present Value × (1 + CAGR)^Years. Historical CAGR benchmarks for common investments (long-term averages):

• U.S. stocks (S&P 500): ~10% CAGR before inflation (1926–2024), ~7% after inflation
• U.S. Treasury bonds: ~4–5% CAGR nominal, ~1–2% real
• Real estate: ~4–6% CAGR price appreciation; total return (with rental income) ~8–10%
• Gold: ~7% CAGR nominal (1971–2024), ~3% real
• High-yield savings/CDs: Current 4.5–5.25% CAGR (locked for CD term)

$10,000 invested at different CAGR rates over 30 years: at 5%: $43,219; at 7%: $76,123; at 10%: $174,494. The difference between 7% and 10% over 30 years is $98,371 on a $10,000 investment — illustrating why long-term return rate matters far more than short-term market fluctuations.

CAGR Formula: When to Use It and Its Limitations

CAGR is the most useful single metric for comparing investments over time, but it has important limitations:

• Ignores volatility: Two investments with the same CAGR can have dramatically different risk profiles. One that returns 10% every year has the same CAGR as one that returns +40%, -20%, +35%, -15%, +20% — but the volatile one feels (and is) very different to hold.
• Assumes reinvestment: CAGR assumes all returns are reinvested at the same rate — not always the case with dividends, interest payments, or partial withdrawals.
• Sequence of returns risk: CAGR doesn't capture when returns occur. The same CAGR experienced with losses early vs. gains early produces different real outcomes for someone making withdrawals (relevant for retirement planning).
• Point-to-point measurement: CAGR is highly sensitive to start and end dates. A 10-year CAGR ending March 2009 (market bottom) looks terrible; ending March 2020 (just before recovery) looks weak — despite being the same underlying investment.

CAGR in Business: Revenue and Earnings Growth

CAGR is widely used in business analysis to measure company growth rates over time. Revenue CAGR benchmarks by industry (approximate 5-year averages for publicly traded companies):

• Software/Cloud: 15–35% revenue CAGR for high-growth companies
• E-commerce: 10–25% CAGR (slowing from COVID-era peaks)
• Healthcare: 5–12% CAGR (stable, lower growth)
• Consumer staples: 2–5% CAGR (slow but stable)
• Mature industrials: 1–4% CAGR (GDP-ish growth)

A company growing revenue at 20%+ CAGR for 5+ years is typically valued at a premium multiple. CAGR declining from 30% to 15% often signals competitive pressure or market saturation even if the company is still "fast-growing" in absolute terms. Analysts compare CAGR against industry benchmarks and historical expectations to assess performance.

Annual Return Calculator: CAGR vs. Average Annual Return

CAGR (geometric mean) and average annual return (arithmetic mean) are different numbers and produce different values for the same investment. Example: Investment returns +50% in year 1, −33% in year 2.

• Arithmetic average: (+50% + −33%) ÷ 2 = 8.5% average annual return
• CAGR (geometric mean): Starting $100 → after year 1: $150 → after year 2: $100.50. CAGR = ($100.50/$100)^(1/2) − 1 = 0.25%

The arithmetic average (8.5%) massively overstates actual returns compared to the CAGR (0.25%). CAGR is always the correct metric for measuring actual investment performance — arithmetic averages are misleading for volatile returns. This is why fund performance must be reported using time-weighted CAGR, not arithmetic averages.

Frequently Asked Questions

What is a good CAGR?

"Good" CAGR depends heavily on the asset class, time period, and risk level. For a diversified stock portfolio: 8–12% CAGR over 10+ years is strong. For a bond portfolio: 3–5% is good. For individual stocks: 15%+ over 5+ years outperforms the market (but few sustain this long-term). For business revenue: 20%+ CAGR is exceptional; 10–15% is solid for established companies.

How do I calculate CAGR in Excel?

CAGR formula in Excel: =(Ending Value/Beginning Value)^(1/Number of Years)-1. Example: Beginning value in A1 ($10,000), ending value in B1 ($18,500), years in C1 (8). Formula: =(B1/A1)^(1/C1)-1, formatted as percentage = 8.01%. Alternatively, use the RRI function: =RRI(C1,A1,B1) which calculates CAGR directly.

What is the difference between CAGR and IRR?

CAGR measures growth between two known endpoints and assumes no interim cash flows. IRR (Internal Rate of Return) accounts for cash flows at multiple points in time — initial investment, interim distributions, and final value. For simple investments (lump sum in, lump sum out), CAGR and IRR are identical. For investments with dividends, capital calls, or multiple cash flows, IRR is more accurate. Real estate and private equity typically use IRR; stock portfolio performance uses CAGR.

How do I use CAGR to compare investments?

CAGR allows apples-to-apples comparison across different investment timeframes. If Investment A returned 60% over 3 years and Investment B returned 90% over 5 years: Investment A CAGR = (1.60)^(1/3) − 1 = 17.0%; Investment B CAGR = (1.90)^(1/5) − 1 = 13.7%. Despite the larger absolute return, Investment B had a lower annual growth rate. Investment A performed better on a per-year basis.