Investing & Wealth/ˈsiː.eɪ.dʒiː.ɑːr/
Compound Annual Growth Rate (CAGR)
The annualized rate of return required for an investment to grow from its beginning balance to its ending balance.
Plain-English Explanation
CAGR smooths out year-to-year stock market volatility to tell you what constant annual percentage return an investment would have achieved over a given time horizon.
Mathematical Formula
CAGR = (Ending Value / Beginning Value)^(1 / Years) - 1
Where Beginning Value is starting capital, Ending Value is final portfolio value, and Years is holding duration.
Real-World Worked Example
If an investment of $10,000 grows to $20,000 over 5 years, the CAGR is (20,000 / 10,000)^(1/5) - 1 = 14.87% per year.
Why Compound Annual Growth Rate (CAGR) Matters for Your Finances
CAGR allows apples-to-apples comparisons between different asset classes with varying return patterns over different timeframes.
Common Misconception
CAGR is a geometric smoothing metric, not a reflection of actual annual stock price movements in individual years.
Interactive Tool
Calculate Compound Annual Growth Rate (CAGR) with FinanceFlow
Use our free calculator to model your personal values.