CAGR Calculator

What Is CAGR?

CAGR — Compound Annual Growth Rate — is the single most useful number for comparing investments across different time horizons. Instead of asking "what did my investment return in total?", CAGR asks "what would the equivalent per-year growth rate have been if growth had been perfectly smooth?"

The formula is:
CAGR = (End Value ÷ Start Value)^(1 ÷ Years) − 1

Express that as a percentage by multiplying by 100. For example, $10,000 growing to $16,105 over 5 years: CAGR = (16,105 / 10,000)^(1/5) − 1 = 1.6105^0.2 − 1 ≈ 0.10 = 10% per year.

CAGR vs. Average Annual Return

Arithmetic averages overstate actual performance when returns fluctuate. Consider a fund that gains 100% in year 1 and loses 50% in year 2:

• Arithmetic average: (100 + −50) ÷ 2 = +25%
• CAGR: $1,000 → $2,000 → $1,000 = 0%

The investor made nothing, yet the arithmetic average says 25%. CAGR reveals the truth. This is why fund managers disclose CAGR (or "annualised return") rather than simple averages — it is the honest metric.

Benchmarks: What Is a Good CAGR?

• Inflation (US CPI average): ~3% — the minimum return needed to preserve purchasing power
• US Treasury bonds (10-year): 3–5% — the risk-free baseline
• S&P 500 (historical, ~100 years): ~10% nominal / ~7% real
• Residential real estate: 8–12% (including rental yield)
• Venture capital (median fund): 15–25%+ (compensates for high failure rate)
• Warren Buffett / Berkshire Hathaway (1965–2023): ~19.8% CAGR

Any CAGR above 10% sustained over a decade is genuinely exceptional. Beware investments promising consistent 20%+ — they either carry enormous risk or the numbers are fabricated.

Limitations of CAGR

CAGR tells you nothing about the path taken. Two investments with identical CAGRs can have completely different risk profiles:

• Investment A: climbs smoothly 10% each year
• Investment B: drops 40%, then surges 80%, then drops 20%, then surges 50% — same end CAGR

For a more complete picture, pair CAGR with standard deviation or maximum drawdown. When investments involve ongoing cash flows — SIPs, regular savings, dividend reinvestment — use IRR (Internal Rate of Return) instead, which CAGR cannot handle correctly.

Using CAGR to Set Goals

CAGR works both directions. If you know your starting capital and a target amount, and want to know the required annual growth rate:

Required CAGR = (Target ÷ Current)^(1 ÷ Years) − 1

Example: You have $50,000 and want $200,000 in 10 years. Required CAGR = (200,000 / 50,000)^(1/10) − 1 = 4^0.1 − 1 ≈ 14.87% per year. That is well above the historic market average — a realistic plan would require concentrated exposure to growth assets or significant additional capital contributions.