CAGR (Compound Annual Growth Rate) is the rate at which an investment or metric grows from a starting value to an ending value over a specific time period, assuming growth compounds annually. It smooths out volatility to show a consistent annual growth rate.

What is a good CAGR for investments?

The S&P 500 has historically returned ~10% CAGR (nominal) or ~7% inflation-adjusted. A CAGR above 15% is considered excellent for long-term investments. For business revenue, 20–30% CAGR is strong for a growing company. Context matters — compare against industry benchmarks.

What is the difference between CAGR and average annual return?

Average annual return simply averages yearly returns (e.g., +50%, -30%, +20% = 13.3% average). CAGR calculates the actual compounded rate needed to go from start to end value. CAGR is more accurate for measuring real investment performance because it accounts for compounding.

Can CAGR be negative?

Yes. A negative CAGR means the investment or metric declined over the period. For example, if a $10,000 investment became $7,000 over 5 years, the CAGR is approximately -6.9% per year.

Investment & Finance

How to Calculate CAGR: Compound Annual Growth Rate Formula & Examples

CAGR (Compound Annual Growth Rate) is the most accurate way to measure investment or business growth over time. Unlike simple averages, CAGR accounts for compounding and gives you a single, consistent annual growth rate. It's used by investors, analysts, and business leaders to compare performance across different time periods and asset classes.

The CAGR Formula

CAGR = (End Value / Start Value)^(1/Years) − 1

End Value

Final value of the investment or metric

Start Value

Initial value at the beginning of the period

Years

Number of years in the measurement period

Example: $10,000 invested in 2016 grew to $25,000 by 2024 (8 years).
CAGR = (25,000 / 10,000)^(1/8) − 1 = 2.5^0.125 − 1 = 12.1% per year

CAGR Calculator

Start Value ($)

End Value ($)

Years

CAGR

12.14%

Total Return

150.0%

Gain / Loss

$15,000

$10,000 grew to $25,000 over 8 years at 12.14% per year

ROI Calculator

Step-by-Step CAGR Calculation

Example: A business had $500,000 revenue in 2020 and $1,200,000 in 2025 (5 years).

Identify start and end values

Start = $500,000 | End = $1,200,000 | Years = 5

Divide end by start

$1,200,000 ÷ $500,000 = 2.4

Raise to the power of (1/Years)

2.4^(1/5) = 2.4^0.2 = 1.1912

Subtract 1 and convert to percentage

1.1912 − 1 = 0.1912 = 19.12% CAGR

Result: Revenue grew at

19.12% CAGR

from $500k to $1.2M over 5 years

CAGR Benchmarks by Asset Class

S&P 500 (historical)(Long-term)

~10%

Real Estate (US avg)(Long-term)

~4–6%

High-growth startup(Early stage)

50–100%+

Mature company revenue(Annual)

5–15%

Bonds (US Treasury)(Long-term)

3–5%

Inflation (US avg)(Long-term)

~3%

Frequently Asked Questions

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CAGR Formula

(End / Start)^(1/Years) − 1

Multiply result by 100 for percentage.

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