How to Calculate CAGR (Compound Annual Growth Rate)
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It measures the mean annual growth rate of an investment over a specified period longer than one year. CAGR smooths out the volatility of periodic returns to show a single, steady growth rate.
The CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n = number of years. For example, if you invested $10,000 and it grew to $15,000 over 3 years: CAGR = (15000/10000)^(1/3) - 1 = 14.47%.
How to Use the CAGR Calculator
1. Enter your initial investment amount. 2. Enter your final investment value. 3. Enter the number of years. 4. Click Calculate. The tool will instantly show your CAGR percentage.
Why CAGR Matters
CAGR is the best way to compare investments with different holding periods. It accounts for compounding and gives you a true picture of annual performance, unlike simple average returns.
Limitations of CAGR
CAGR does not reflect investment risk or volatility. It assumes smooth growth, which rarely happens in real markets. Always consider other metrics alongside CAGR.