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CAGR
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⚠️ Disclaimer: CAGR is a mathematical measure of historical growth and does not predict or guarantee future returns. Past performance is not indicative of future results. Consult a qualified financial advisor before making investment decisions.
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Sources & Methodology
CAGR formula verified against CFA Institute curriculum and standard financial mathematics references.
CFA Institute — Time Value of Money and Growth Rates
CFA curriculum standards for calculating compound growth rates and evaluating investment performance metrics
Investopedia — Compound Annual Growth Rate (CAGR)
Authoritative definition and applications of CAGR in investment analysis, business valuation, and financial planning
CAGR formula: CAGR = (EV / BV) raised to the power (1/n) minus 1. Where EV = Ending Value, BV = Beginning Value, n = Number of Years. Future Value: FV = BV x (1 + CAGR) raised to the power n. Results expressed as a percentage rounded to 2 decimal places.
⏱ Last reviewed: April 2026
How Is CAGR Calculated?
Compound Annual Growth Rate (CAGR) measures the rate at which an investment or metric grows from a beginning value to an ending value over a specific number of years, assuming growth compounds each year. Unlike simple average growth rate, CAGR smooths out year-to-year volatility and provides a single representative growth rate for the entire period.
The CAGR Formula
CAGR = (EV / BV) ^ (1 / n) - 1
EV = Ending Value | BV = Beginning Value | n = Number of Years
Example: $10,000 grows to $18,000 in 5 years
CAGR = (18,000 / 10,000) ^ (1/5) - 1
= 1.8 ^ 0.2 - 1 = 1.1247 - 1 = 12.47%
Future Value from CAGR: FV = BV x (1 + CAGR) ^ n
$10,000 at 12% for 5 years: FV = 10,000 x 1.12^5 = $17,623
Example: $10,000 grows to $18,000 in 5 years
CAGR = (18,000 / 10,000) ^ (1/5) - 1
= 1.8 ^ 0.2 - 1 = 1.1247 - 1 = 12.47%
Future Value from CAGR: FV = BV x (1 + CAGR) ^ n
$10,000 at 12% for 5 years: FV = 10,000 x 1.12^5 = $17,623
CAGR Benchmarks by Investment Type
| Investment / Metric | Typical CAGR | Context |
|---|---|---|
| S&P 500 (long-term nominal) | ~10-11% | Historical average, pre-inflation |
| S&P 500 (inflation-adjusted) | ~7% | Real return after inflation |
| High-growth technology stocks | 15-30%+ | Individual names, high risk |
| US inflation rate | 2-4% | CPI long-term average |
| Real estate (US average) | 3-5% | Nominal price appreciation |
| High-growth SaaS revenue | 30-50%+ | Early-stage company |
CAGR vs Average Annual Growth Rate
Consider an investment: Year 1: +50%, Year 2: -33.3%. Simple average = (+50% - 33.3%) / 2 = +8.35%. But the actual result: $100 x 1.5 x 0.667 = $100. Net gain = 0%. CAGR = (100/100)^(1/2) - 1 = 0%. CAGR correctly shows zero growth. Average growth rate is misleading here because it does not account for compounding. CAGR always reflects the actual compound growth path.
The Rule of 72 and CAGR
The Rule of 72 is a fast mental approximation: divide 72 by the CAGR percentage to estimate how many years it takes to double an investment. At 12% CAGR, 72 / 12 = 6 years to double. At 8% CAGR, 72 / 8 = 9 years. At 6% CAGR, 72 / 6 = 12 years. This works well for rates between 4% and 15%.
💡 Limitation: CAGR assumes smooth compounding without interim cash flows. For investments involving ongoing contributions or withdrawals (like a 401k), use IRR (Internal Rate of Return) instead, which correctly handles multiple cash flows at different time periods. CAGR is best for a single lump-sum investment measured at two points in time.
Frequently Asked Questions
CAGR stands for Compound Annual Growth Rate. It is the rate at which an investment grows from its beginning value to its ending value over a given number of years, assuming growth is reinvested each year. It is also called the smoothed annualized growth rate.
CAGR = (Ending Value / Beginning Value) raised to the power (1 / n) minus 1. Example: $10,000 grows to $18,000 in 5 years. CAGR = (18,000/10,000)^(1/5) - 1 = 1.8^0.2 - 1 = 12.47%.
For long-term stock investments, 7-10% is considered solid (S&P 500 average). For individual stocks or portfolios, 15-20%+ is excellent. For business revenue, 20-25%+ indicates high growth. Any CAGR above inflation (2-3%) represents real growth.
CAGR measures the single consistent rate that produces the actual end result with compounding. Average growth rate is the arithmetic mean of year-by-year rates. CAGR is more accurate because it accounts for compounding and is not distorted by volatile individual year returns.
CAGR = (EV/BV)^(1/n) - 1. Where EV = Ending Value, BV = Beginning Value, n = Number of Years. Future Value: FV = BV x (1 + CAGR)^n.
For stocks, CAGR represents the annualized return you would have achieved if growth had been perfectly steady. It smooths out year-to-year volatility and is used to compare different investments over the same period.
Businesses use CAGR to measure revenue growth, market share expansion, and valuation multiples. Investors use CAGR to evaluate company performance against competitors. A high revenue CAGR (20%+ for tech companies) indicates strong growth trajectory.
The S&P 500 has delivered approximately 10-11% nominal CAGR and 7% real (inflation-adjusted) CAGR over long periods. Past performance does not guarantee future results.
CAGR measures growth between two point-in-time values with a single beginning and ending value. IRR accounts for multiple cash flows at different times, making it more accurate for investments with ongoing contributions or withdrawals.
Yes. If the ending value is less than the beginning value, CAGR is negative. Example: $10,000 declining to $7,500 over 3 years gives CAGR = (7500/10000)^(1/3) - 1 = -9.14%.
Future Value = Beginning Value x (1 + CAGR)^n. Example: $10,000 at 12% CAGR for 5 years = 10,000 x (1.12)^5 = 10,000 x 1.7623 = $17,623.
A 5-year CAGR is the compound annual growth rate calculated over a 5-year period. Formula: CAGR = (Ending Value / Beginning Value)^(1/5) - 1. It is commonly used to evaluate medium-term investment and business performance.
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