Compound annual growth rate between two values over a period

What CAGR actually answers

Compound Annual Growth Rate (CAGR) is the rate that, if compounded annually, would turn your starting value into your ending value over the given period. It's the honest annualised return on an investment — stripping out the deceptive simplicity of total return, which doesn't account for time. A 50% total return in 2 years is 22.5% CAGR; the same 50% total return over 10 years is 4.1% CAGR. These are profoundly different performance profiles hidden behind the same headline number. CAGR is the standard measure for comparing investments across different time periods.

The formula in plain

CAGR = (Ending Value / Starting Value)^(1/years) - 1. 10,000 grows to 17,500 over 5 years: CAGR = (17500/10000)^(1/5) - 1 = 1.75^0.2 - 1 = 11.84% per year. The year-root is where compounding gets expressed — it's the rate that, applied five times, would get you from the starting value to the ending value. The calculator above handles this arithmetic; the discussion below is about when CAGR is useful and when it misleads.

When CAGR is genuinely useful

Three legitimate uses:

Comparing investments across different time periods. Fund A returned 85% over 6 years; Fund B returned 55% over 4 years. Total returns aren't comparable. CAGR: Fund A = 10.9%, Fund B = 11.6%. Fund B was slightly better on an annualised basis despite the lower total return.

Stripping time from total-return marketing. "Returned 100% over 10 years!" sounds great until you calculate 7.2% CAGR — below long-term equity market averages. Marketing-grade claims become honest claims after CAGR conversion.

Building forward projections. If an investment has historically delivered 8% CAGR, applying that to future projections is more defensible than applying peak-year or recent-period returns.

The volatility CAGR hides

CAGR is a smoothed number. It assumes steady growth at the stated rate. Real investments rarely grow smoothly. An investment returning 12% CAGR might have been -15%, +40%, +5%, -8%, +33%, +16% across individual years. The CAGR tells you the end result; the volatility tells you the emotional ride to get there. Two investments with identical 8% CAGR but wildly different volatility profiles require very different investor temperaments. The CAGR is the headline; standard deviation of returns is the fine print.

CAGR vs average annual return

These are different numbers and usually confused. Annual returns: 20%, -10%, 20%, -10%. Simple average: 5% per year. CAGR: (1.2 × 0.9 × 1.2 × 0.9)^0.25 - 1 = 3.9% per year. CAGR is always lower than or equal to simple average return, with bigger gaps in more volatile sequences. This is the mathematical fact that makes "average return" claims so misleading in investment marketing. An "average 10% annual return" over a volatile period might only produce 5-6% CAGR — significantly less compounding than the average number suggests. Always ask for CAGR specifically; accept "average annual return" as useful only when volatility is low.

The "smoothness" comparison

Say two funds both produce 8% CAGR over 10 years. Fund X does it through steady 8% annual growth. Fund Y does it through +25%, -20%, +30%, -10%. averaging to 8% CAGR despite much larger swings. The CAGR is identical. The investor experience is profoundly different — Fund Y requires the ability to stay invested through large drawdowns. For risk-adjusted performance, Sharpe ratio (returns / standard deviation) provides what CAGR doesn't — the steadiness of the path to the endpoint. Sophisticated investor comparisons use both.

When CAGR lies to you

Two scenarios where CAGR misleads:

Periods ending at peaks. CAGR from 2008 (post-crash low) to 2021 (pre-crash peak) shows dramatically different numbers than CAGR from 2007 peak to 2022 trough. The start and end points matter hugely for short-to-medium-term CAGR calculations. 20+ year CAGR windows smooth this effect; shorter windows can dramatically mislead.

Single-year outliers. A fund that returned +100% in year 1 and +2% per year for years 2-10 has an impressive CAGR. The CAGR hides that year 1 was the entire story. Understanding what produced the CAGR matters as much as the CAGR number itself.

Real investment CAGR benchmarks

For long periods (20+ years), equity market CAGR for major indices typically runs 7-10% nominal in developed markets. FTSE All-Share: ~6-7% nominal over long periods. S&P 500: ~9-10% nominal. Emerging markets: more volatile but similar long-term averages. Bonds: 2-5% nominal historically. Cash: 2-4% nominal. Real rates (after inflation) are 3-4 percentage points lower for equities, near zero for cash. Any investment claiming 15%+ sustained CAGR over decades is either unusually successful, unusually lucky, or (most commonly) unusually marketed.

CAGR of a portfolio vs individual investments

A portfolio CAGR is a weighted average of its components, adjusted for rebalancing effects. If you held 60% stocks at 8% CAGR and 40% bonds at 4% CAGR for a decade, your portfolio CAGR isn't exactly 6.4% — it depends on how often you rebalanced and whether you made contributions during the period. For self-managed portfolios, tracking the CAGR of total wealth (across all accounts) is more useful than CAGR of any single holding — the whole is what matters for retirement planning.

What the calculator shows

The tool computes CAGR given starting value, ending value, and time period. It doesn't model volatility, sequence risk, ongoing contributions during the period, or fees. For historical analysis of a completed investment, the CAGR figure is exact. For forward projections, use historical CAGR as a guide but acknowledge that past rates don't guarantee future ones.