What CAGR measures
CAGR — compound annual growth rate — is the smoothed yearly growth rate of an investment over a period longer than one year. It answers a single question: if this had grown by the exact same percentage every year, what percentage would that be?
That smoothing is the point. An investment that gains 60% one year and loses 30% the next has an eye-catching 30% simple average, but it only turned $10,000 into $11,200 — a CAGR of 5.8%. CAGR is the number that survives contact with reality.
The CAGR formula
CAGR = (EV / BV)(1 / n) − 1
- EV = ending value of the investment
- BV = beginning value of the investment
- n = number of years between the two values
- Multiply the result by 100 to read it as a percentage
Spreadsheet version: =(EV/BV)^(1/n)-1 — or =RRI(n, BV, EV).
Step-by-step calculation
- Write down the beginning value. Take the value of the investment on the first day of the period — the amount you actually paid in, before any growth.
- Write down the ending value. Take the value on the last day of the period, including reinvested dividends if you want a total-return figure.
- Count the number of years. Use the exact elapsed time in years. Nine months is 0.75 years, not 1.
- Divide ending value by beginning value. This gives the total growth multiple over the whole period. $18,000 ÷ $10,000 = 1.8.
- Raise the result to the power of 1 ÷ years. 1.8 ^ (1 ÷ 5) = 1.1247. On a phone calculator this is the x^y button; in a spreadsheet it is =1.8^(1/5).
- Subtract 1 and convert to a percentage. 1.1247 − 1 = 0.1247, so the CAGR is 12.47% per year.
Three worked examples
1. An index fund held for five years
You invested $10,000 in a broad index fund and it is worth $18,000 five years later, with dividends reinvested.
| Beginning value (BV) | $10,000 |
| Ending value (EV) | $18,000 |
| Years (n) | 5 |
| EV / BV | 1.80 |
| 1.80 ^ (1/5) | 1.1247 |
| CAGR | 12.47% per year |
2. Revenue growth for a company
A company reported $4.2 billion of revenue in 2021 and $9.6 billion in 2026 — five years of growth. 9.6 ÷ 4.2 = 2.2857. Raised to the power of 1/5 that is 1.1795, so revenue compounded at 17.95% per year. That single figure is far more useful for comparison than five separate year-over-year percentages.
3. A losing position
You bought $6,000 of a single stock and three years later it is worth $4,500. 4,500 ÷ 6,000 = 0.75, and 0.75 ^ (1/3) = 0.9086. Subtract 1 and the CAGR is −9.14% per year. CAGR handles losses without any special treatment — the ratio simply falls below 1.
Common mistakes
- Counting data points instead of years. Values for 2021 through 2026 span five years, not six.
- Using CAGR when money moved in and out. Regular contributions break the assumption; use XIRR instead.
- Ignoring dividends. Price-only CAGR understates a dividend-paying stock. Compare like with like.
- Extrapolating a short window. A three-year CAGR from a bull market is not a forecast.
- Forgetting inflation. Subtract roughly the inflation rate to get a real growth rate.
Use the calculator
Rather than doing the arithmetic by hand, drop your numbers into the CAGR calculator and it returns the annualised rate instantly. For projecting forward instead of measuring backwards, the compound interest calculator applies the same maths in the other direction.
Frequently asked questions
What is the CAGR formula?
CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1. Multiply the result by 100 to express it as a percentage.
How is CAGR different from average annual return?
A simple average adds each year's return and divides by the number of years, which overstates results when returns swing. CAGR is a geometric mean: it is the single constant rate that would take you from the starting value to the ending value, so it reflects what you actually earned.
Can CAGR be negative?
Yes. If the ending value is lower than the beginning value, the ratio is below 1 and the CAGR is negative — the constant annual rate of decline over the period.
How do I calculate CAGR in Excel or Google Sheets?
With the beginning value in A1, ending value in A2, and years in A3, use =(A2/A1)^(1/A3)-1 and format the cell as a percentage. The RRI function does the same thing: =RRI(A3,A1,A2).
What is a good CAGR for a stock portfolio?
Historically, a broad US stock index has produced roughly 10% nominal CAGR over long periods, or about 7% after inflation. Any figure well above that over a short window usually reflects luck or unusual risk rather than a repeatable rate.
Does CAGR account for deposits I made along the way?
No. CAGR assumes a single starting amount that grows untouched. If you added or withdrew money, use money-weighted return (IRR / XIRR) instead.
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