CAGR Calculator - Compound Annual Growth Rate Analysis
Calculate compound annual growth rate (CAGR) for investments, project future values, and analyze investment performance. Compare returns, understand compounding effects, and make informed investment decisions.
CAGR = (Ending Value ÷ Beginning Value)^(1/n) - 1
Where n = number of years
Interest earns interest
Fixed annual interest
Additional return from compounding effect
| Scenario | CAGR | Final Value | Total Return | Years to Double |
|---|---|---|---|---|
| Conservative | 4.00% | $12,167 | 21.67% | 18 years |
| Balanced | 7.00% | $14,026 | 40.26% | 10 years |
| Growth | 10.00% | $16,105 | 61.05% | 7 years |
| Aggressive | 15.00% | $20,114 | 101.14% | 5 years |
| Your Investment | 8.45% | $15,000 | 50.00% | 9 years |
- • CAGR of 8.4% is in the healthy range for long-term wealth building.
| Year | Beginning Value | Growth Amount | Ending Value | Cumulative Growth |
|---|---|---|---|---|
| 1 | $10,000 | $845 | $10,845 | 8.45% |
| 2 | $10,845 | $916 | $11,761 | 17.61% |
| 3 | $11,761 | $993 | $12,754 | 27.54% |
| 4 | $12,754 | $1,077 | $13,832 | 38.32% |
| 5 | $13,832 | $1,168 | $15,000 | 50.00% |
- •Smooths out year-to-year volatility
- •Standardizes returns for comparison
- •Shows true compound growth rate
- •Useful for long-term planning
- •CAGR assumes steady growth rate
- •Real investments have volatility
- •Past performance doesn't guarantee future results
- •Consider risk-adjusted returns
Quick Navigation
Understanding CAGR
Compound Annual Growth Rate (CAGR) is the rate of return required for an investment to grow from its beginning value to its ending value over a specific time period, assuming profits are reinvested and compounding occurs. CAGR provides a standardized way to compare investments across different time periods and smooths out the volatility that comes with year-to-year performance variations. Understanding CAGR is essential for investment analysis, retirement planning, and making informed financial decisions about your portfolio's performance expectations.
📊 Growth Rate
💰 Compounding
📈 Performance
🎯 Comparison
CAGR Formula & Calculation
📊 CAGR Formula
💡 Example Calculation
Initial: $10,000
Final: $16,105
Period: 5 years
CAGR vs Other Metrics
While CAGR is an excellent tool for measuring investment performance, it's important to understand how it compares to other financial metrics. Each metric serves different purposes in investment analysis, and using the right metric for your specific situation will lead to better decision-making. CAGR excels at showing long-term growth trends but should be complemented with other metrics for comprehensive analysis.
🎯 Choosing the Right Metric
Investment Applications
📊 Portfolio Performance
- • Mutual fund & ETF tracking
- • Individual stock analysis
- • Portfolio growth metrics
- • Benchmark comparisons
🎯 Goal Setting
- • Investment targets
- • Retirement planning
- • Advisor evaluation
- • Investment selection
⚖️ Risk Analysis
- • Sharpe ratio comparison
- • Maximum drawdowns
- • Volatility assessment
- • Return consistency
Business Growth Analysis
CAGR is not limited to investment analysis - it's equally valuable for evaluating business performance and growth metrics. Companies use CAGR to track revenue growth, earnings progression, and market share expansion over multiple years. Investors and analysts rely on CAGR to compare companies within the same industry and assess management effectiveness in growing the business consistently over time.
📈 Revenue Growth
- • Sales growth trends
- • Market share expansion
- • Product line performance
- • Geographic expansion
💰 Profitability
- • Earnings per share
- • EBITDA growth
- • Cash flow trends
- • Dividend increases
🏢 Competition
- • Industry benchmarks
- • Market cap growth
- • Customer acquisition
- • Global expansion
Interpreting CAGR Results
Interpreting CAGR results requires context and understanding of market benchmarks, risk factors, and time periods. A high CAGR may indicate excellent performance, but it could also signal higher volatility or risk. Conversely, a moderate CAGR might represent consistent, stable growth that's more sustainable long-term. Compare your results to relevant benchmarks and consider the risk-adjusted returns for a complete picture of investment performance.
📊 Benchmark Returns
🏠 Alternative Assets
⏳ Time Period Analysis
Common CAGR Pitfalls
Understanding common mistakes and limitations in CAGR analysis helps you make better investment decisions and avoid unrealistic expectations. While CAGR is a powerful tool, it has limitations that investors should recognize. Awareness of these pitfalls will help you use CAGR effectively as part of a comprehensive investment analysis approach.
⚠️ Volatility Misconceptions
- • Not yearly consistent returns
- • Doesn't indicate risk level
- • No future guarantees
- • Losses still possible
⏰ Period Selection
- • Avoid favorable bias
- • Don't start at bottoms
- • Don't end at peaks
- • Include recent data
🎯 Risk Factors
- • Volatility variations
- • Drawdown potential
- • Liquidity differences
- • Correlation impacts
Real-World CAGR Examples
Examining real-world examples of CAGR across different asset classes, time periods, and market conditions provides valuable insights into what constitutes realistic return expectations. These examples demonstrate how CAGR applies to actual investments and help you set appropriate benchmarks for your own portfolio performance evaluation.
📈 Market Returns
🏢 Business Growth
💼 Investment Strategies
Frequently Asked Questions
Tax Implications of Investment Growth
When analyzing CAGR, it's crucial to consider the tax implications of your investment growth, as taxes can significantly impact your actual returns. Different types of investments are taxed differently, and the timing of when you realize gains affects your overall CAGR. Understanding these tax considerations helps you make more informed decisions about investment vehicles and timing strategies.
🏛️ Tax-Advantaged Accounts
- • 401(k) and IRA growth is tax-deferred
- • Roth accounts provide tax-free growth
- • No annual tax drag on compound growth
- • Higher effective CAGR in retirement accounts
💰 Taxable Accounts
- • Annual tax on dividends and interest
- • Capital gains tax when selling
- • Tax drag reduces effective CAGR
- • After-tax CAGR is lower than pre-tax
💡 Tax-Adjusted CAGR Example
Advanced CAGR Analysis Techniques
Beyond basic CAGR calculations, advanced techniques can provide deeper insights into investment performance and risk. These methods help professional investors and financial advisors make more nuanced decisions about portfolio construction and performance evaluation.
📊 Risk-Adjusted CAGR
- • Sharpe ratio analysis
- • Maximum drawdown consideration
- • Volatility-adjusted returns
- • Sortino ratio evaluation
⏱️ Rolling CAGR
- • Multiple time period analysis
- • Consistency evaluation
- • Market cycle impact
- • Entry/exit timing effects
🎯 Probability Analysis
- • Monte Carlo simulations
- • Success probability estimation
- • Worst-case scenario planning
- • Range of outcome analysis
Key Takeaways for CAGR Analysis
CAGR provides a standardized way to measure and compare investment performance across different time periods by smoothing out yearly volatility. Use our comprehensive calculator above to analyze historical performance, project future values, and compare different investment scenarios. Remember that CAGR assumes steady growth, while real investments experience volatility and market cycles.
Understanding the difference between CAGR and other metrics like average returns and IRR is crucial for proper investment analysis. CAGR is ideal for buy-and-hold strategies, while IRR better handles multiple cash flows. Consider using our IRR Calculator for complex investment scenarios with regular contributions or withdrawals.
Tax implications significantly impact your real CAGR, especially in taxable accounts where annual taxes create drag on compound growth. Tax-advantaged accounts like 401(k)s and IRAs allow the full power of compounding to work. Use our 401(k) Calculator and IRA Calculator to optimize your retirement savings strategy.
CAGR analysis should always include risk considerations and market context. A 15% CAGR over 3 years might not be sustainable long-term, while a consistent 8% CAGR over 20 years demonstrates more reliable performance. Use CAGR alongside other metrics and always consider your risk tolerance, investment timeline, and overall financial goals when making investment decisions.