Compound Annual Growth Rate (CAGR) Calculator
Compute annualized compound growth rates across multi-year investment horizons.
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How to Use the CAGR Calculator: Compound Annual Growth Rate Formula
- 1Input the beginning or initial investment value.
- 2Enter the ending or final investment value.
- 3Specify the total elapsed duration in years.
- 4Review your annualized CAGR percentage, total percentage gain, and Rule of 72 doubling timeline.
Formula & How It Works
CAGR Equation
Geometric progression formula that calculates constant annualized return.
Worked Examples
$10,000 Portfolio Growing to $26,500 in 7 Years
Input: Initial: $10,000, Final: $26,500, Duration: 7 Years
Explanation: A $16,500 total gain over 7 years equates to a steady compound growth rate of 14.93% annually.
Frequently Asked Questions
What is the key advantage of CAGR over average annual return?▼
CAGR accounts for the compounding effect and sequence of returns, whereas simple averages ignore volatility drag (e.g. a 50% drop requires a 100% gain just to break even).
Does CAGR account for investment risk or volatility?▼
No. CAGR provides only the smoothed annual rate; it does not measure intermediate portfolio drawdowns or volatility like the Sharpe ratio does.
How is the Rule of 72 doubling time calculated?▼
Dividing 72 by the CAGR percentage provides the estimated number of years required for an investment to double in value.
What has been the historical CAGR of the S&P 500?▼
Historically, the S&P 500 has delivered a nominal CAGR of approximately 10% per year (roughly 7% after adjusting for inflation) over long-term multi-decade periods.
Quick Reference & Conversion Table
| Total Return Multiple | 3 Years CAGR | 5 Years CAGR | 10 Years CAGR |
|---|---|---|---|
| 1.5x (+50%) | 14.47% | 8.45% | 4.14% |
| 2.0x (+100%) | 25.99% | 14.87% | 7.18% |
| 3.0x (+200%) | 44.22% | 24.57% | 11.61% |
| 5.0x (+400%) | 70.99% | 37.97% | 17.46% |
⚠️ Common Pitfalls to Avoid
- •Using simple arithmetic average return instead of geometric CAGR (arithmetic average overstates true compound portfolio growth).
- •Applying CAGR to investments with fluctuating intermediate capital deposits or withdrawals.
💡 Practical Real-World Uses
- •Benchmarking investment fund performance against broad indices like the S&P 500.
- •Analyzing annual company revenue growth metrics in pitch decks and corporate filings.
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