About This Tool
The CAGR calculator computes the Compound Annual Growth Rate, which is the average annual growth rate of an investment over a specified period. It smooths out volatility and gives you a single number to compare different investments. CAGR is widely used for stocks, mutual funds, and business revenue growth. It tells you the rate at which your investment would have grown if it had grown at a steady rate each year.
How It Works
CAGR is calculated using the formula: CAGR = (Ending Value / Beginning Value)^(1 / n) - 1, where n is the number of years. The result is expressed as a decimal, then multiplied by 100 for a percentage. For example, an investment that grows from $1,000 to $2,000 over 5 years has a CAGR of (2000/1000)^(1/5) - 1 = 0.1487, or 14.87%.
Examples
- A stock that goes from $50 to $80 over 4 years has a CAGR of (80/50)^(1/4) - 1 = 0.1247, or 12.47%.
- A mutual fund that grows from $10,000 to $18,000 over 6 years has a CAGR of (18000/10000)^(1/6) - 1 = 0.1029, or 10.29%.
Pro Tips
- CAGR assumes smooth growth—it doesn't reflect risk or volatility, so use it alongside standard deviation for a risk-adjusted view.
- Ensure the time period (n) is in years; for partial years, convert months to decimal years (e.g., 18 months = 1.5 years).
- CAGR is most meaningful for periods of 3+ years; shorter periods can be misleading due to market fluctuations.