What is a good CAGR for an investment?

It depends on the asset class and risk level. Savings accounts often earn about the rate of inflation or less, depending on the country and period. For diversified stock market investments, long-run CAGRs of roughly 7% to 10% before inflation are typical, and more than that over 10 years is considered strong. For individual stocks, 20%+ CAGR over 5 years is excellent. Always compare against a relevant benchmark.

What is the difference between CAGR and average return?

Simple average return adds up annual returns and divides by years. CAGR accounts for compounding and gives the geometric average. For example, +100% in year 1 and −50% in year 2 gives a simple average of 25%, but the actual CAGR is 0% — you are back where you started. CAGR is always the more accurate measure.

Can CAGR be negative?

Yes. If the final value is lower than the initial value, the CAGR is negative. For example, an investment that fell from $10,000 to $7,000 over 3 years has a CAGR of −11.2% per year.

How is CAGR different from ROI?

ROI (Return on Investment) is a total percentage return over the entire period, without considering time. CAGR is annualised — it tells you the per-year rate. A 50% ROI over 5 years equals a CAGR of 8.45% per year. CAGR is more useful for comparing investments of different lengths.

Is CAGR the same as compound interest?

They use the same mathematics but serve different purposes. Compound interest is a rate you earn on savings or are charged on a loan. CAGR is a backward-looking measurement of what growth rate actually occurred between two values. You can also use CAGR forward-looking (to project growth), but the formula is the same as compound interest.

What CAGR should I use when planning for retirement?

For long-term retirement planning, many planners assume roughly 5% to 7% a year after inflation (about 7% to 9% before inflation) for a diversified equity portfolio, depending on your risk tolerance. Use conservative estimates to avoid overshooting your savings target.

CAGR Calculator, Compound Annual Growth Rate

Quick Answer

CAGR (Compound Annual Growth Rate) is calculated as CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1. For example, an investment that grew from $10,000 to $18,000 over 5 years has a CAGR of (18,000 ÷ 10,000)^(1/5) − 1 = 12.47% per year.

What Is CAGR Calculator?

CAGR, or Compound Annual Growth Rate, is the single annualised rate at which an investment would have grown from its starting value to its ending value if it had grown at a perfectly steady rate each year. In reality, investments rarely grow at the same pace every year — the stock market might return 30% one year and −10% the next — but CAGR smooths those fluctuations into one easy-to-compare number.

CAGR is the gold standard for comparing investment performance because it accounts for compounding. A fund that returned 50% in year one and then fell 20% in year two has not given you a 15% average annual return — it has actually given you a CAGR of about 9.5%. Simple averaging gives a misleading answer; CAGR does not.

Investors use CAGR to compare mutual funds, stocks, real estate, and even business revenue growth. A business that grew revenue from $1 million to $2.5 million in 4 years has a revenue CAGR of 25.7%, which is a far more useful single number than saying 'it grew by 150% in total'.

How to Use

1Select 'Find CAGR' mode to calculate the annual growth rate between two values, or 'Project Growth' to see what your investment will be worth at a given CAGR.
2Enter the initial value — your starting investment amount or beginning portfolio balance.
3For 'Find CAGR': enter the final (current) value and the number of years between the two values.
4For 'Project Growth': enter the CAGR percentage you expect and the number of years ahead.
5Read your result: CAGR % in 'Find' mode, or projected future value in 'Project' mode. The year-by-year table shows how the value grows each year.

Formula

CAGR Formula

CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1

Multiply result by 100 to get the percentage

Future Value

FV = Initial Value × (1 + CAGR)^Years

Use this to project what an investment will be worth

Total Return %

Total Return = (Final − Initial) ÷ Initial × 100

This is the simple total return, not annualised

Example: $20,000 investment grew to $45,000 in 7 years

Initial value = 20,000
Final value = 45,000
Years = 7
CAGR = (45,000 ÷ 20,000)^(1 ÷ 7) − 1
= (2.25)^(0.1429) − 1
= 1.1235 − 1 = 0.1235

CAGR = 12.35% per year. The investment more than doubled, compounding at about 12.35% annually.

Tips & Things to Know

CAGR tells you nothing about volatility — two funds with identical CAGRs may have had very different risk profiles along the way. Always look at CAGR alongside standard deviation or maximum drawdown.
Long-run stock market returns depend heavily on the market and the period. The US market has returned roughly 10% a year before inflation over the very long run (about 6% to 7% after inflation), and global markets somewhat less. Use conservative assumptions for planning rather than the best historical periods.
Real estate returns vary enormously by city and period. When you compare property with other investments, include purchase and selling costs, taxes and maintenance, and adjust for inflation to get the real CAGR.
When comparing two mutual funds or investment options, always compare CAGRs over the same time period. A 5-year CAGR vs a 3-year CAGR is not a fair comparison.
CAGR ignores cash flows — if you added money or withdrew money during the period, CAGR will give inaccurate results. For portfolios with regular contributions, use XIRR instead.

CAGR Calculator