CAGR (Compound Annual Growth Rate) Calculator
Disclaimer: This calculator is for informational purposes only. Past performance is not indicative of future results. Consult a financial professional before making any investment decisions.
Compound Annual Growth Rate (CAGR)
This is the annualized rate of return for your investment.
How Does This Work?
The Compound Annual Growth Rate (CAGR) calculator determines the average annual return of an investment over a specific period, assuming that the profits were reinvested at the end of each year. It provides a "smoothed" rate that irons out the year-to-year volatility.
- Beginning Value: The initial value of your investment at the start of the period.
- Ending Value: The final value of your investment at the end of the period.
- Number of Years: The total duration of the investment in years.
- The Formula: The calculator uses the standard CAGR formula:
CAGR = [(Ending Value / Beginning Value)^(1 / Number of Years)] - 1. The result is then converted to a percentage.
The Story Behind the Smoothed Return
Before CAGR became a standard metric, investors often used a simple average to measure returns. However, this method can be highly misleading. For example, if an investment grows 50% in year one and then loses 50% in year two, the simple average return is 0%. But in reality, an initial $100 would become $150 and then fall to $75—a net loss!
The concept of a **geometric mean**, which is the mathematical basis for CAGR, was developed to solve this problem. CAGR doesn't just average the returns; it shows the single, constant rate at which the investment would have needed to grow each year to reach the final value from its starting point. This makes it an indispensable tool for accurately comparing the performance of different investments (like stocks, mutual funds, or real estate) over time.
Explore More Related Tools
CAGR is a powerful tool for analyzing past performance. Use these other calculators to plan your financial future:
- Investment ROI Calculator: Calculate the total return on investment as a percentage.
- Compound Interest Calculator: Project the future growth of an investment with compounding.
- SIP Calculator: Estimate the returns on your Systematic Investment Plan.
- Rule of 72 Calculator: Quickly estimate how long it will take for an investment to double.
- Inflation Calculator: Understand how inflation impacts the real value of your money and returns.
- Stock Profit & Loss Calculator: Calculate the net profit or loss from your stock trades.
- Retirement Withdrawal Calculator: See how long your investment corpus will last with regular withdrawals.
- Lumpsum Investment Calculator: See the future value of a one-time investment.
- Percentage Calculator: For all kinds of quick percentage calculations.
- PPF Calculator: A tool for planning investments in India's Public Provident Fund.
Frequently Asked Questions (FAQ)
What is the main limitation of CAGR?
CAGR's main limitation is that it's a historical measure and does not indicate future performance. It also assumes a smooth growth path and ignores volatility, meaning it doesn't tell you how risky an investment was during the period.
When should I use CAGR?
CAGR is most useful for comparing the performance of different investments over a period of more than one year. It's an excellent way to evaluate the long-term performance of mutual funds, stocks, or your overall investment portfolio.
Is CAGR the same as annual return?
Not exactly. Annual return can refer to the return in a single year (e.g., "the return in 2023 was 15%"). CAGR, on the other hand, is the average annual return over a multi-year period, taking compounding into account.