The CAGR formula
CAGR = (Ending / Starting)1/n − 1
Where n is the number of years. CAGR is the constant annual rate that would grow your starting value to the ending value if compounded over that period.
Why CAGR is better than average return
Imagine a stock that goes +50% in year 1 and −50% in year 2. The arithmetic average return is 0%, but you actually have only 75% of what you started with. CAGR correctly reports this as roughly −13.4% per year — the truth about your wealth's growth path.
Common CAGR benchmarks
- S&P 500 (1926-2024): ~10% nominal, ~7% real
- Berkshire Hathaway (1965-2023): ~20% — Buffett's record
- US 10-year Treasury: ~5% over the same span
- Inflation (CPI): ~3% long-term
- US median home price: ~4-5% nominal
What CAGR doesn't tell you
CAGR smooths out the path. A 10% CAGR over 10 years could be a steady 10% per year, or a wild ride of +40%, −30%, +50%, −20%, etc. For risk-adjusted performance, use the Sharpe ratio (which we also have a calculator for).