Compound Annual Growth Rate Calculator
Calculate the annual growth rate of an investment over a specified time period.
Compound Annual Growth Rate
What does this mean?
The Compound Annual Growth Rate (CAGR) represents the mean annual growth rate of an investment over a specified time period longer than one year. It measures the smooth, constant rate at which an investment would have grown if it had compounded at the same rate each year.
CAGR is particularly useful for comparing investments over different time periods or evaluating an investment against benchmarks. It smooths out volatility and provides a clearer picture of an investment's performance over time.
Why Retail Investors Should Use Compound Annual Growth Rate
Standardized Comparison
CAGR allows you to compare investments over different time periods on an equal footing. By converting returns to an annual rate, you can easily compare a 3-year investment with a 5-year investment to see which performed better on an annualized basis.
Smooths Out Volatility
Unlike simple returns, CAGR smooths out the volatility of an investment, showing you the steady rate at which your investment would have grown if it had increased at a constant rate. This helps you focus on the long-term trend rather than short-term fluctuations.
Better Long-Term Planning
CAGR is an excellent tool for long-term financial planning. By understanding the annualized growth rate of your investments, you can make more accurate projections about future values and better assess whether you're on track to meet your financial goals.