CAGR Calculator

CAGR (Compound Annual Growth Rate) represents the constant annual rate of return that would take an investment from its beginning value to its ending value over a specified time period. It smooths out volatility and provides a single number that captures the overall growth trajectory.

The formula is: CAGR = (Ending Value / Beginning Value)^(1/Years) - 1

For example, if an investment grew from $10,000 to $25,000 over 5 years, the CAGR is about 20.1%. This means the investment grew at an average of 20.1% per year, even though actual yearly returns may have varied significantly.

CAGR and average return can give very different numbers for the same investment. Consider a stock that goes up 100% in year one and down 50% in year two. The average return is 25% ((100% - 50%) / 2), but the CAGR is 0% because $10,000 becomes $20,000 then returns to $10,000.

CAGR is generally the more useful measure because it accounts for compounding and shows the actual growth rate of your money. Average return can overstate performance, especially for volatile investments.

When evaluating fund managers, financial products, or your own portfolio performance, always look at CAGR rather than simple average returns.

Knowing typical CAGR values helps put your investment returns in perspective:

• S&P 500: Approximately 10% CAGR over the long term (before inflation), or about 7% after inflation.
• US Bonds: Approximately 5-6% CAGR historically.
• Real Estate: Approximately 3-4% CAGR for home prices nationally (varies significantly by market).
• Gold: Approximately 7-8% CAGR over the past 50 years.
• Inflation: Approximately 3% CAGR historically in the US.

An investment with a CAGR above 15% over 10+ years is exceptional. Warren Buffett's Berkshire Hathaway achieved roughly 20% CAGR over several decades, widely considered one of the best long-term track records in investing.