How to Calculate Your Compound Annual Growth Rate (CAGR)

When you start investing, you’ll see that your returns are never a smooth, straight line. They look more like a rollercoaster:

• Year 1: Up 20%
• Year 2: Down 10%
• Year 3: Up 15%

So, how did you really do? You can't just add them up. And taking a "simple average" is also wrong and very misleading.

This is where CAGR (Compound Annual Growth Rate) comes in. It’s the single most important number for understanding your true investment performance over time.

Why a "Simple Average" Is Wrong (The 50/50 Trap)

Let's see why a simple average fails.

Imagine you invest $100.

• Year 1: You have a great year and get a +50% return. Your $100 grows to $150.
• Year 2: You have a terrible year and get a -50% return. You lose 50% of your $150, which is $75. Your account drops to $75.

After two years, you ended up with $75. You lost $25.

But what does a "simple average" tell you? (+50%) + (-50%) = 0%. 0% / 2 years = 0% average return.

A 0% return means you should have your original $100. But you don't. You have $75. The simple average is wrong.

What Is CAGR, Then?

CAGR cuts through the messy ups and downs.

It answers one simple question: "What is the single, smooth, average rate my money would have needed to grow every single year to get from its starting value to its ending value?"

It finds the steady, hypothetical growth rate that, when compounded, equals your real-world result. This is the only way to compare the performance of two different investments (like your stock vs. an S&P 500 fund) in an apples-to-apples way.

To find it, you just need three numbers:

1. Your Starting Value
2. Your Ending Value
3. The Number of Years

Try the Calculator

Find the true compounded growth rate of your investment.

What was your starting value? ($): [ $ ] What is your ending value? ($): [ $ ] How many years did you invest? (Time): [ ] (Calculate) Your Compound Annual Growth Rate (CAGR) is: [ _ ]%

Example: Putting the Calculator to Work

Let's say 5 years ago, you invested $10,000 into a fund.

Today, after 5 years of wild ups and downs, your account is now worth $15,030.

You plug these numbers into the calculator:

• Starting Value: $10,000
• Ending Value: $15,030
• Years: 5

The calculator shows you a CAGR of 8.5%.

This means that even though your returns were all over the place, the actual performance was the same as if you had earned a steady, guaranteed 8.5% every single year for those 5 years.

Now you have a real number. You can compare your 8.5% to other funds or to the S&P 500's performance over that same 5-year period to see if you made a good choice.