How CAGR is calculated
CAGR answers: what constant annual rate, compounded every year, turns the starting value into the ending value over the period?
- begin — starting value
- end — ending value
- years — number of years
More detail
CAGR vs. total return
Total return just compares start and end (end/begin − 1). CAGR spreads that same growth evenly across every year, so investments held for different lengths of time can be compared on equal footing.
Why it matters. A 100% total return sounds identical whether it took 2 years or 10 — but the CAGR (41% vs. 7%) shows how much faster the growth actually was.
Frequently asked questions
What's a "good" CAGR for stocks?
There is no absolute number. The same CAGR reads very differently depending on what you hold it against — a deposit rate, inflation over the same window, or another asset of similar risk. Rather than aiming at a fixed target, compare your CAGR after taxes and fees with inflation and with whatever alternative you would otherwise have held over the exact same start and end dates.
How is CAGR different from a simple average of yearly returns?
Averaging yearly percentage returns overstates growth because it ignores compounding and can't handle a loss year properly (e.g. −50% then +50% averages to 0%, but you're actually down 25%). CAGR instead solves for the single steady rate that actually connects the starting and ending value, so it always matches the real outcome.
Can CAGR be negative?
Yes — enter an ending value lower than the starting value and the formula (end/begin)^(1/years) − 1 returns a negative percentage, meaning the value shrank on average each year over the period.
Does CAGR account for volatility along the way?
No. CAGR only looks at the start and end values, so two investments with the identical CAGR can have had very different, and very different risk, paths in between. Check the total return block above to see how CAGR relates to the raw start-to-end change.