What is Compound Annual Growth Rate (CAGR)?
Compound Annual Growth Rate (CAGR) is the annualized rate of return that takes a starting value to an ending value over a specified number of years, assuming all gains are reinvested and growth is constant each year. It eliminates the distortion of variable year-to-year performance, giving you a single comparable number.
CAGR is used throughout finance: fund managers cite it in factsheets, analysts use it to benchmark SaaS revenue growth, and individual investors rely on it to compare a 5-year fund record against a 10-year one. It is a backward-looking measure of what actually happened, expressed as a smooth annual rate — not a projection of future performance.
The CAGR formula
The formula requires three inputs: starting value, ending value, and the number of years elapsed.
CAGR = (Ending Value / Starting Value) ^ (1 / Years) − 1Ending Value — the final portfolio or metric value. Starting Value — the value at the beginning of the period. Years — the length of the measurement window; use decimals for partial years (e.g., 7.5). The exponent 1/Years converts a cumulative total return into an annualized rate.
Worked example
You invested $25,000 in a broad market index fund in January 2015 and it grew to $73,400 by January 2025 — a 10-year period. What was the CAGR?
- Step 1: Divide ending by starting: $73,400 ÷ $25,000 = 2.936
- Step 2: Raise to the power of 1/10: 2.936 ^ 0.10 = 1.1136
- Step 3: Subtract 1 and convert to a percentage: 1.1136 − 1 = 0.1136 → 11.36% CAGR
The fund grew at an equivalent steady 11.36% per year — above the S&P 500's long-run historical average of roughly 10% nominal. The total return was 193.6%, but CAGR is what lets you compare this against a different fund held for only 7 years.
When to use the CAGR calculator
CAGR is the right tool whenever you need to compare growth across different time windows or understand the annualized pace of any metric.
- Comparing index funds over different periods: Fund A returned 85% over 7 years; Fund B returned 140% over 10 years. Their CAGRs (9.1% vs 9.2%) reveal near-identical annualized performance — something raw return figures completely obscure.
- Evaluating a startup or SaaS investment: A company grew revenue from $1.2M to $8.7M over 5 years. CAGR = 48.5% — a strong growth rate you can benchmark against sector medians or your own hurdle rate.
- Benchmarking your portfolio: Compare your personal portfolio CAGR against SPY's CAGR over the same exact dates to see whether you actually outperformed on a like-for-like basis.
- Real estate appreciation: A property bought for $320,000 in 2010 and sold for $610,000 in 2022 has a 12-year CAGR of 5.5% — slightly above the national long-run average of 4–5% nominal.
Common mistakes
CAGR is simple to calculate but easy to misuse. These errors appear most often in practice.
- Comparing CAGRs from different time windows: A fund's 3-year CAGR of 18% (which may reflect a bull-market recovery) is not directly comparable to its 15-year CAGR of 9.5%. Always use the same start and end dates when comparing two investments head-to-head.
- Treating CAGR as a future promise: CAGR describes what happened. The S&P 500's 10-year CAGR of ~13.6% through 2024 does not mean you should expect 13.6% going forward; it reflects a specific historical environment.
- Ignoring fees and taxes: Advertised CAGR figures are almost always gross of expenses. A fund with 11% gross CAGR and a 1% expense ratio delivers only 10% to you — a difference of roughly 17% in terminal wealth over 20 years.
- Using CAGR without a volatility measure: A crypto position that went from $10,000 to $47,000 over 4 years shows a 47.3% CAGR, but the path may have included a −70% drawdown. CAGR tells you nothing about the ride; pair it with the Sharpe ratio for a complete picture.
Limitations of CAGR
CAGR is a single-number summary that loses information about the path between start and end. Two portfolios can have identical 10-year CAGRs while one experienced a smooth 10% per year and the other swung from +60% to −40% repeatedly. An investor who couldn't stomach the drawdowns might have sold at the worst moment in the volatile portfolio — even though both ended at the same CAGR.
CAGR also does not account for cash flows during the measurement period. If you added $5,000 to your account midway through, the higher ending balance partly reflects the new capital, not just compounding growth. For portfolios with ongoing contributions or withdrawals, money-weighted return (IRR) gives a more accurate measure of your actual investment performance.
Frequently asked questions
What is a good CAGR for a stock portfolio?
The S&P 500 has delivered approximately 10% nominal CAGR and roughly 7% real (inflation-adjusted) CAGR since 1926. Consistently beating the index by 2–3 percentage points over a full decade is considered excellent by professional standards. Warren Buffett's Berkshire Hathaway achieved roughly 20% CAGR from 1965 to 2023 — a record almost no institutional manager has replicated.
How is CAGR different from IRR?
CAGR measures growth between a single starting value and a single ending value with no interim cash flows. IRR (Internal Rate of Return) handles multiple cash flows — contributions, withdrawals, dividends taken as cash — and finds the discount rate that makes their combined net present value zero. For a simple lump-sum investment held to a single exit point, CAGR and IRR produce the same number.
Can CAGR be negative?
Yes. If your ending value is less than your starting value, the CAGR is negative. For example, $50,000 falling to $31,000 over 6 years produces a CAGR of −7.4%. Negative CAGR is the annualized rate of loss — and it is the correct way to express multi-year underperformance rather than citing a raw percentage decline.
Does CAGR apply to non-financial metrics?
Absolutely. CAGR is routinely applied to revenue growth, user growth, and market-size projections — any metric that compounds over time. A company that grew monthly active users from 2.1 million to 9.8 million over 5 years has a user CAGR of 36.1%, a figure that benchmarks cleanly against industry growth rates.
Related calculators
These calculators complement CAGR for a more complete picture of investment performance:
- Compound Interest Calculator — project what a given CAGR actually produces in dollar terms over time, with optional regular contributions.
- Sharpe Ratio Calculator — measure whether the CAGR you earned was worth the volatility you experienced along the way.