CAGR vs Simple Return
Simple return measures total change. CAGR annualizes it. 150% total return over 8 years = 12.14% CAGR, not 18.75% (150/8).
Calculate the Compound Annual Growth Rate (CAGR) to measure the smooth annual return of an investment or value over a specified period. Enter your beginning value, ending value, and time period for instant results.
CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents the rate at which an investment would have grown if it had grown at a steady rate.
Unlike simple growth rate, CAGR smooths out year-to-year volatility. An investment that fluctuates wildly — up 30% one year, down 10% the next — can be expressed as a single CAGR number for comparison.
CAGR is the gold standard for comparing investments, business growth, and economic trends across different time horizons. It answers: "What steady annual rate would produce the same total return?"
Simple return measures total change. CAGR annualizes it. 150% total return over 8 years = 12.14% CAGR, not 18.75% (150/8).
Average return ignores compounding. +50% then -50% averages 0% but actually loses 25%. CAGR captures the real result.
Divide 72 by your CAGR to estimate doubling time. At 12% CAGR, your investment doubles roughly every 6 years.
Compare fund performance, stock returns, and portfolio growth across different time periods using a standardized annual rate.
Track revenue, customer, or market share growth on an annualized basis for strategic planning and investor presentations.
Measure property appreciation rates across different markets and holding periods with a consistent annual metric.
GDP growth, inflation trends, and productivity measures all use CAGR for long-term trend analysis and forecasting.
Project future portfolio values using historical CAGR to estimate if savings will meet retirement goals.
Researchers use CAGR to standardize growth comparisons across different studies, regions, and time periods.
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$5K → $15K over 10 years.
$100K → $250K in 5 years.
$1M → $5M in 7 years.
$50K → $40K in 3 years.
CAGR stands for Compound Annual Growth Rate. It measures the mean annual growth rate of an investment over a period longer than one year, assuming profits are reinvested each period.
CAGR = (Ending Value / Beginning Value)^(1/n) − 1, where n = number of years. Multiply by 100 for percentage.
CAGR only considers start and end points — it ignores volatility in between. Two investments with the same CAGR can have very different risk profiles. It also doesn't account for cash flows (deposits/withdrawals).
The S&P 500 has historically returned ~10% CAGR (7% inflation-adjusted). A CAGR above 15% is excellent. Above 25% is exceptional. Below 5% underperforms bonds.
Use =((B1/A1)^(1/C1))-1 where A1 = beginning value, B1 = ending value, C1 = years. Format as percentage. Or use =RATE(C1,,-A1,B1).
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