BCBetter Calculators

CAGR Calculator

Calculate the Compound Annual Growth Rate (CAGR) of an investment over time.

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Enter your values and click Calculate

How It Works

CAGR is calculated using the formula: CAGR = (endingValue ÷ beginningValue)^(1 ÷ years) − 1, expressed as a percentage. The core idea is finding the nth-root of the total growth ratio, where n is the number of years. This nth-root operation effectively 'de-compounds' the total growth back into an equivalent annual rate. For example, if an investment grows from $10,000 to $15,000 over 5 years, the total ratio is 1.5. The fifth root of 1.5 (i.e., 1.5^0.2) equals approximately 1.0845, so the CAGR is 8.45%. This means if the investment had grown at exactly 8.45% each year, compounded annually, it would have reached precisely $15,000 after 5 years. CAGR can also be negative — if the ending value is less than the beginning value, the ratio is below 1, and the nth-root minus 1 yields a negative percentage representing the annual rate of decline.

Examples

5-Year Portfolio Growth
A retirement account grows from $50,000 to $75,000 over 5 years.
Result: Shows a CAGR of 8.45% and an overall ROI of 50.00%.
Short Term Investment
An investment of $2,000 turns into $2,500 in just 1.5 years.
Result: Calculates an impressive annualized CAGR of 16.04%.
Investment Loss
A stock portfolio drops from $10,000 to $8,000 over 3 years.
Result: Reflects a negative CAGR of -7.17%.

Frequently Asked Questions

What is the difference between CAGR and ROI?
ROI (Return on Investment) measures total percentage growth from start to finish, regardless of how long it took. CAGR normalizes that total return into an equivalent annual rate, making it possible to compare investments held for different lengths of time on equal footing. For example, Investment A with 50% ROI over 5 years has a CAGR of 8.45%, while Investment B with 50% ROI over 2 years has a CAGR of 22.5% — the same cumulative return but dramatically different annual performance.
Does CAGR assume reinvested profits?
Yes — CAGR is inherently a compound growth measure and implicitly assumes all returns are reinvested at the same annual rate. This makes it most accurately applicable to total-return investments like index funds with dividends reinvested, compounding savings accounts, or businesses where retained earnings drive further growth. If income or dividends are withdrawn rather than reinvested, the portfolio's actual growth trajectory will diverge from what the CAGR figure implies.
What is the limitation of CAGR?
CAGR smooths year-to-year volatility into a single steady-growth assumption, which can mask the real experience of holding an investment. Two funds with identical CAGRs can have radically different risk profiles — one growing steadily and another swinging dramatically up and down. CAGR is also backward-looking: a strong historical CAGR does not predict future performance, and a great CAGR measured during a bull market may look very different when extended through a bear market downturn.

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