CAGR Calculator

CAGR Calculator

How to Use the CAGR Calculator

A CAGR Calculator (Compound Annual Growth Rate Calculator) is a financial tool that measures the mean annual growth rate of an investment over a given time period, assuming the investment has been compounding consistently.

This makes CAGR an excellent metric for comparing different investments or understanding how an asset grows over time. It smooths out fluctuations and gives you a single, average annual growth rate.

Why CAGR Matters

Investments rarely grow at a perfectly steady pace. For example, your portfolio might grow 20% in one year, drop 5% the next, and then climb 15% afterward. CAGR simplifies this by telling you the average yearly growth rate as if the investment grew at a consistent pace every year.

It’s widely used in:

  • Stock market analysis
  • Comparing mutual funds or ETFs
  • Business revenue growth evaluation
  • Cryptocurrency performance tracking
  • Long-term financial planning

How to Use the Calculator

  1. Enter the Initial Value – This is your starting investment (e.g., $10,000).
  2. Enter the Final Value – This is the ending value after the investment period (e.g., $15,000).
  3. Enter the Number of Years – The total duration the investment was held (e.g., 5 years).
  4. Click “Calculate CAGR” – The tool will display:
    • The Initial Investment
    • The Final Value
    • The Number of Years
    • The CAGR (%)

Example

Suppose you invested $10,000 in a mutual fund, and after 5 years, the value grew to $15,000.

  • Initial Value = $10,000
  • Final Value = $15,000
  • Years = 5

The CAGR formula is:CAGR=(FinalInitial)1/Years−1CAGR=(InitialFinal​)1/Years−1CAGR=(1500010000)1/5−1=8.45%CAGR=(1000015000​)1/5−1=8.45%

So, the investment grew at an average annual rate of 8.45%.

Benefits of Using CAGR

  • Simple & clear: Compresses volatile growth into a single number.
  • Useful for comparison: Helps decide between multiple investment options.
  • Long-term perspective: Smooths out short-term ups and downs.

FAQ: CAGR Calculator

Q1: What does CAGR tell me?
A: CAGR shows the average annual return of an investment if it had grown at a steady rate, even though real-world growth fluctuates.

Q2: Is CAGR the same as annual return?
A: No. Annual return varies each year, while CAGR is the smoothed-out average growth rate over multiple years.

Q3: Can CAGR be negative?
A: Yes, if the final value of your investment is lower than the initial value, CAGR will be negative, indicating a loss.

Q4: Is CAGR only for investments?
A: No. It can also be used for business metrics like revenue, customer growth, or sales performance over time.

Q5: What’s a “good” CAGR?
A: It depends on the asset class:

  • Stocks: 7–10% historically for long-term averages
  • Bonds: 3–5%
  • Real estate: 5–8%
  • Businesses vary widely by industry

Q6: Does CAGR account for risk or volatility?
A: No. It only shows average growth, not the ups and downs. To evaluate risk, you need other metrics like standard deviation or Sharpe ratio.

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