One number, smoothed
Real investments rarely grow the same amount every year — some years are up sharply, others are flat or negative. CAGR ignores that noise and answers a simpler question: what single, constant annual rate would have produced the same overall result? That makes it the standard way to compare two investments, funds or time periods fairly.
What CAGR doesn't tell you
A smooth 8% CAGR and a wild ride that also averages to 8% CAGR can feel completely different to hold — CAGR says nothing about volatility or risk along the way. Use the Compound Interest Calculator to project forward with regular contributions instead of a single lump sum.
Frequently asked questions
What is CAGR?
Compound Annual Growth Rate is the smoothed, constant annual rate that would take a starting value to an ending value over a given number of years, as if it grew steadily rather than fluctuating. It is the standard way to compare investment or business growth over different time periods.
How is CAGR calculated?
CAGR = (Ending Value ÷ Starting Value)^(1 ÷ Years) − 1, expressed as a percentage. It answers "what constant yearly rate produces this same overall result?"
Why is CAGR different from averaging the yearly returns?
A simple average of yearly returns can overstate real growth because it ignores compounding and the effect of volatility — a portfolio that goes up 50% then down 50% has averaged 0% but actually lost 25%. CAGR reflects what actually happened to your money.
What is CAGR useful for?
Comparing investments, funds or business revenue over different time periods on equal footing, and as a single, easy-to-communicate growth figure — though it hides the year-to-year volatility along the way.
Last updated: June 2026