CAGR Calculator

What This Calculator Does

You bought a stock for $10,000 five years ago. Today it is worth $25,000. Your total return is 150%, but what is the annual growth rate? That number is the compound annual growth rate, or CAGR, and it is the single most honest way to describe how an investment performed over time.

The CAGR Calculator takes three inputs: the initial value of your investment, the final value, and the number of years between the two. It returns the steady annual growth rate that would turn the starting amount into the ending amount. The result is expressed as a percentage per year, which makes it easy to compare investments held for different lengths of time.

According to a SEC investor bulletin, comparing annualized returns rather than total returns is one of the most reliable ways to evaluate investment performance. CAGR smooths out the volatility of year-to-year returns into a single number that reflects the real, compounded growth of your money.

Inputs Required

• Initial Value: The amount you invested at the start of the period
• Final Value: The value of the investment at the end of the period
• Time Period: The number of years (or fractions of a year) between the initial and final values

Outputs Provided

• CAGR: The compound annual growth rate as a percentage per year
• Total Return: The total percentage gain or loss over the full period
• Absolute Gain: The dollar difference between the final and initial values
• Growth Chart: A smoothed curve showing how the investment would have grown at the calculated CAGR

How the Calculation Works

CAGR uses a geometric mean formula. Instead of averaging the yearly returns, it finds the single constant rate that compounds the starting value into the ending value.

Each variable plays a specific role. The ratio of final to initial value captures the total growth. Raising it to the power of 1 divided by years converts the total growth into an annual rate. Subtracting 1 leaves you with the percentage growth rate rather than a growth multiple.

For the $10,000 to $25,000 example over 5 years: the ratio is 2.5, the fifth root of 2.5 is approximately 1.2011, and subtracting 1 gives 0.2011, or 20.11% per year. That means a steady 20.11% annual return would have turned $10,000 into $25,000 over five years.

How to Use the Calculator

1. Enter the initial value of your investment. This is what you paid or invested at the start.
2. Enter the final value. Use the current balance, sale proceeds, or most recent valuation.
3. Set the number of years between the two values. You can use partial years, such as 4.5 for 54 months.
4. Read the CAGR result. This is your annualized return.

If you have a list of yearly returns instead of start and end values, our Average Return Calculator computes both the arithmetic mean and the geometric mean (which equals CAGR) from annual return percentages.

Example Calculations

Example 1: A 10-Year Stock Holding

Marcus, a 45-year-old engineer in Ohio, invested $50,000 in a diversified stock portfolio in 2016. By 2026, the portfolio is worth $112,000. Over 10 years, his total return is 124%. The CAGR is (112000 / 50000)^(1/10) - 1 = 8.39% per year. That 8.39% is the number he should use when comparing his portfolio against an index fund or a savings account.

Example 2: Real Estate Over 7 Years

Priya bought a rental property in Austin for $320,000 in 2019 and sold it in 2026 for $510,000. The holding period is 7 years. Her total return is 59.4%, which sounds impressive. But the CAGR is (510000 / 320000)^(1/7) - 1 = 6.88% per year. That annualized figure gives her a fair basis for comparing the real estate return against the stock market over the same period. If the S&P 500 returned 10% annualized over those same 7 years, the property underperformed on a pure price basis, even though the dollar gain was large.

Real World Scenarios

Comparing Two Funds With Different Time Horizons

Fund A returned 80% over 4 years. Fund B returned 120% over 7 years. Which performed better? Without annualizing, Fund B looks superior. But Fund A has a CAGR of 15.83% while Fund B has a CAGR of 11.99%. Fund A grew money faster, even though the total percentage was lower, because it did so in a shorter window. CAGR is the only way to make this comparison fairly.

A Portfolio With Withdrawals Mid-Period

Sarah started with $100,000, withdrew $30,000 for a down payment in year 3, and ended year 6 with $145,000. Her raw CAGR using start and end values would be (145000 / 100000)^(1/6) - 1 = 6.36%. But that ignores the withdrawal. To get a true performance figure, she should use a money-weighted return method like IRR, which accounts for cash flows in and out. Our IRR Calculator handles this. CAGR is best suited for single lump-sum investments with no additions or withdrawals.

A Losing Investment

An investor puts $20,000 into a speculative stock. Three years later, the position is worth $14,000. The total return is -30%. The CAGR is (14000 / 20000)^(1/3) - 1 = -11.27% per year. CAGR works for losses too. The negative annualized rate tells the investor exactly how fast the value decayed, which is useful for deciding whether to hold or cut the loss.

Common Mistakes to Avoid

• Confusing CAGR with average annual return: The arithmetic mean of yearly returns is almost always higher than CAGR because it ignores compounding and volatility. A fund that gains 50% one year and loses 50% the next has an arithmetic average of 0%, but a CAGR of -13.4%. Always use CAGR for performance reporting.
• Assuming CAGR means steady growth: CAGR is a smoothed rate. The actual investment almost certainly did not grow at that rate every year. A 10% CAGR over 10 years could include a 30% crash in year 3 and a 25% surge in year 7. The chart in this calculator shows the smoothed path, not the real one.
• Ignoring cash flows: CAGR only works for a single initial investment with no additions or withdrawals. If you added money partway through, the CAGR calculated from start and end values will be wrong. Use IRR or time-weighted return instead.
• Comparing CAGR across very short periods: A 50% return over 3 months annualizes to a CAGR of 351%, which is mathematically correct but practically meaningless. Short-period annualization can produce absurd numbers. Use CAGR for periods of at least one year.

Limitations of This Calculator

This tool calculates CAGR from a starting value, ending value, and time period. It does not account for cash flows in or out of the investment during the holding period. It does not adjust for inflation, taxes, fees, or dividends reinvested outside the position. The growth chart shows a theoretical smooth path at the calculated CAGR, not the actual year-by-year performance. For investments with multiple contributions or withdrawals, use the IRR Calculator. For inflation-adjusted returns, pair this result with our Inflation Calculator.

Authoritative Research and Resources

• SEC: Understanding Investment Fees and Performance - The Securities and Exchange Commission explains why annualized returns are the right way to compare investments held for different periods.
• Investopedia: Compound Annual Growth Rate (CAGR) - A detailed reference covering the CAGR formula, its uses, and its limitations, including the difference between CAGR and average annual return.

For related tools, try our Average Return Calculator to compare arithmetic and geometric means, our ROI Calculator for total return, or our Compound Interest Calculator to project future growth.