How CAGR works
Compound annual growth rate answers a simple question: if this investment had grown at one perfectly steady rate every year, what rate would turn the beginning value into the ending value over that many years? It works with any two values and any period - including fractional years - which makes it the standard yardstick for comparing investments held for different lengths of time.
Because CAGR is a geometric average, it accounts for compounding automatically: doubling your money over 10 years is a 7.2% CAGR, not 10%. The table below the results shows what your beginning value would look like at the end of each year growing at exactly the computed rate - a useful reality check against the actual, bumpier path your investment took.
Frequently asked questions
What does CAGR show - and what does it hide?
CAGR smooths everything between the start and end points into one steady annual rate. It hides volatility completely: a portfolio that lurched up 40% and down 25% can share the exact same CAGR as one that grew in a straight line.
How is CAGR different from average annual return?
The arithmetic average of yearly returns overstates real growth - gaining 50% then losing 50% averages to 0% but leaves you down 25%. CAGR is the geometric mean: the honest rate that actually turns your beginning value into your ending value.
What counts as a good CAGR?
Broad stock indexes have historically compounded at roughly 7-10% per year in nominal terms over long periods. Sustaining 15%+ for a decade or more is exceptional - treat claims of much higher long-run rates with skepticism.