CAGR Calculator
Calculate the Compound Annual Growth Rate (CAGR) for your investments. CAGR represents the smoothed annual return rate over a specified period, accounting for compounding.
CAGR Results
Scenario Comparison
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CAGR Benchmarks
S&P 500 (1957-2023): 10.0% CAGR
Bonds (1926-2023): 5.4% CAGR
Gold (1971-2023): 8.1% CAGR
Real Estate (1991-2023): 8.6% CAGR
Note: Past performance doesn't guarantee future results
Understanding Compound Annual Growth Rate (CAGR)
Compound Annual Growth Rate (CAGR) measures the smoothed annual return rate of an investment over a specified period of time. It represents what an investment would have returned if it grew at a steady rate each year, accounting for the effect of compounding.
How CAGR is Calculated
The CAGR formula is:
CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Periods) - 1
Expressed as a percentage: CAGR × 100
Why CAGR Matters
- Smooths Volatility: Provides a single, smoothed rate for volatile investments
- Easy Comparison: Allows comparison of different investments over different time periods
- Performance Evaluation: Helps assess investment manager performance
- Goal Setting: Useful for retirement and investment planning
- Risk Assessment: Helps understand long-term growth potential
CAGR vs. Average Annual Return
| Aspect | CAGR | Average Annual Return |
|---|---|---|
| Calculation Method | Geometric mean | Arithmetic mean |
| Compounding Effect | Accounts for compounding | Ignores compounding |
| Accuracy for Returns | More accurate for investment returns | Less accurate for volatile investments |
| Best Used For | Long-term investment analysis | Short-term performance |
Limitations of CAGR
- Assumes Smooth Growth: Doesn't reflect actual volatility
- Ignores Cash Flows: Doesn't account for additions/withdrawals
- Past Performance: Historical CAGR doesn't predict future returns
- Time Period Dependent: Different periods can show different CAGRs
- Not Risk-Adjusted: Doesn't consider volatility or downside risk
CAGR in Different Markets
CAGR varies significantly across different asset classes and market conditions:
- Bull Markets: Higher CAGRs (15-25% for stocks)
- Bear Markets: Negative CAGRs (-20% to -50%)
- Bonds: Typically 3-6% CAGR
- Real Estate: Usually 5-10% CAGR
- Commodities: Highly variable, often 0-15% CAGR
Using CAGR for Investment Decisions
- Portfolio Evaluation: Compare performance across different investments
- Goal Setting: Determine required returns to reach financial goals
- Risk Assessment: Evaluate if returns justify the risk taken
- Manager Selection: Compare fund managers' long-term performance
- Market Timing: Assess entry/exit points (though not recommended)
CAGR and Inflation
When evaluating CAGR, consider the impact of inflation. A 10% CAGR might seem impressive, but if inflation is 3%, the real return is only 7%. Always calculate real (inflation-adjusted) CAGR for accurate analysis.
Tip: CAGR is a powerful tool for understanding long-term investment performance, but it should be used alongside other metrics like volatility, Sharpe ratio, and maximum drawdown for a complete picture. Remember that past performance doesn't guarantee future results, and investment involves risk.