CAGR
Compute the compound annual growth rate — the smooth yearly return that would take a starting value to an ending value over a number of years. It's the fairest way to compare investments held for different periods.
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Worked example
CAGR: 20.112443%
How it’s solved
Worked on the example above, step by step — follow along and you can do it on paper next time, no tool required.
- CAGR is the single steady yearly rate that would grow the start value into the end value over the period.
- Divide the end value by the start value
$2,500.00 ÷ $1,000.00 = 2.5 - Take the year-th root (raise to 1 ÷ years)
2.5^(1 ÷ 5) = 1.201124 - Subtract 1 and multiply by 100 for a percent
(1.201124 − 1) × 100 = 20.112443%
Learn the method
Inputs
- Start $
1000 - End $
2500 - Years
5
Frequently asked
How is CAGR calculated?
CAGR = ((end ÷ start)^(1 ÷ years) − 1) × 100, expressed as a percentage.
Why use CAGR instead of total return?
CAGR annualizes the growth, so a five-year and a two-year investment can be compared on the same yearly basis.