What Is CAGR? Compound Annual Growth Rate Explained
CAGR (compound annual growth rate) describes how much an investment grew per year on average, as if it had grown at a steady rate. It is one of the cleanest ways to compare investments over different periods. Here is the formula and how to read it.
The CAGR formula
CAGR = (ending value ÷ beginning value) ^ (1 ÷ years) − 1.
Example: an investment grows from 10,000 to 16,000 over 3 years. CAGR = (16000 ÷ 10000) ^ (1 ÷ 3) − 1 = 1.6 ^ 0.333 − 1 ≈ 0.169, or about 16.9% per year.
Why not just average the yearly returns?
A simple average ignores compounding and can mislead. If an investment gains 50% one year and loses 50% the next, the simple average is 0% — but you actually ended down 25%. CAGR captures the real compounded result, which is why analysts prefer it.
What CAGR does not tell you
CAGR smooths over the bumps — it assumes steady growth even when the real path was volatile. It says nothing about risk or the year-to-year swings. Use it to compare end-to-end growth, not to judge how rocky the ride was.
Calculate it instantly
Enter your beginning value, ending value and number of years into the CAGR Calculator for an instant rate. To see how steady compounding builds a balance over time, the Compound Interest Calculator is a good companion.
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Last updated: July 6, 2026