How do you calculate CAGR?

Use the formula CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1, then multiply by 100 for a percentage. Example: $10,000 growing to $18,000 over 5 years gives (18,000 ÷ 10,000)^(1/5) − 1 = 12.47% CAGR.

Is CAGR the same as average return?

No. Average return is the simple mean of yearly returns and ignores compounding, so it overstates performance when returns are volatile. CAGR is the true compounded annual rate. For example, +50% then −50% averages to 0% but the real CAGR is −13.4% per year because you actually lost money.

What is a good CAGR for an investment?

It depends on the asset and risk. Broad equity index funds have historically delivered roughly 7–12% CAGR over the long run, bonds 4–7%, and savings accounts 2–6%. A 9% CAGR from a diversified index fund is excellent; the same 9% from a high-risk speculative stock is a poor reward for the risk taken.

What are the limitations of CAGR?

CAGR hides volatility (two portfolios with the same CAGR can have very different worst years), assumes no cash flows in or out, is backward-looking, and is highly sensitive to the start and end dates you pick. For investments with regular contributions like a SIP, use XIRR instead of plain CAGR.

How do you calculate CAGR in Excel?

Use either =(Ending÷Beginning)^(1÷Years)−1 or the built-in =RATE(Years, 0, −Beginning, Ending) function, then format the cell as a percentage. For example, =RATE(5, 0, −10000, 18000) returns 12.47%. The RATE method avoids typing the exponent manually and is the quickest way to calculate CAGR in Excel or Google Sheets.

What is the difference between CAGR and IRR?

CAGR measures the smoothed annual growth between a single start value and end value, assuming no money is added or withdrawn in between. IRR (internal rate of return) accounts for the timing and size of every cash flow, so it's the correct measure when you make regular contributions like a SIP. When there are no interim cash flows, CAGR and IRR give the same result.

How to Calculate CAGR: Formula, Examples & Free Calculator (2026)

Your investment grew from $10,000 to $18,000 over five years. Is that good? "It went up 80%" tells you almost nothing — you need the annual rate. CAGR (Compound Annual Growth Rate) turns any messy, multi-year return into one clean number you can compare across stocks, funds, and time periods.

Key Takeaways

6 points

1
CAGR is the constant annual rate that would grow your starting value to your ending value over the full period — as if it compounded smoothly every year.
2
The formula is: CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1.
3
CAGR is not the same as average return — it accounts for compounding, so it's always lower than the simple average of yearly returns when returns are volatile.
4
A 'good' CAGR depends on the asset: ~7–10% for broad equity index funds over the long run, more for individual growth stocks, less for bonds.
5
CAGR hides the bumps — it tells you the smoothed rate, not the volatility or the worst year along the way.
6
Use the CAGR Calculator to get the rate instantly, in any of 10 currencies.

What Is CAGR (Compound Annual Growth Rate)?

CAGR is the single annual growth rate that, if it repeated every year, would take your investment from its starting value to its ending value. It smooths out the real, lumpy path — the up years and down years — into one representative number. That's exactly what makes it useful: a stock that returns +40%, −20%, +15%, −5%, and +30% across five years is impossible to judge at a glance, but its CAGR collapses all of that into "roughly 10% per year."

Because it builds in compounding, CAGR is the honest way to compare two investments held for different lengths of time. "Fund A doubled in 7 years" and "Fund B tripled in 12 years" aren't comparable until you convert both to CAGR (10.4% vs 9.6% — Fund A actually wins).

The CAGR Formula

CAGR formula

CAGR = (Ending Value ÷ Beginning Value) ^ (1 ÷ Number of Years) − 1

Multiply the result by 100 to express it as a percentage.

You only need three inputs: where you started, where you ended, and how long it took. The exponent (1 ÷ Number of Years) is what "un-compounds" the total growth back into a per-year rate.

How to Calculate CAGR: Step-by-Step Example

Say you invested $10,000 and it grew to $18,000 over 5 years.

Divide ending by beginning value: 18,000 ÷ 10,000 = 1.8
Raise to the power of (1 ÷ years): 1.8 ^ (1 ÷ 5) = 1.8 ^ 0.2 = 1.1247
Subtract 1: 1.1247 − 1 = 0.1247
Convert to a percentage: 0.1247 × 100 = 12.47% CAGR

So your money grew at an effective 12.47% per year, compounded — even though it never actually returned exactly that in any single year.

How to Calculate CAGR in Excel or Google Sheets

You don't need the manual exponent math in a spreadsheet. There are two easy ways to calculate CAGR in Excel:

Two Excel formulas for CAGR

= (Ending ÷ Beginning) ^ (1 ÷ Years) − 1= RATE(Years, 0, −Beginning, Ending)

Format the cell as a percentage. The RATE function returns the same compound annual growth rate without typing the exponent yourself.

CAGR vs Average Return: The Mistake That Inflates Your Numbers

This is the most common error in performance reporting. A simple average of yearly returns is almost always higher than the true CAGR, and the gap widens with volatility.

Year	Return	Value of $10,000
Year 1	+50%	$15,000
Year 2	−50%	$7,500

The simple average says (50% − 50%) ÷ 2 = 0% return — sounds like you broke even. But you actually lost $2,500. The real CAGR is (7,500 ÷ 10,000)^(1/2) − 1 = −13.4% per year. CAGR tells the truth because it respects the order and compounding of returns; the simple average doesn't.

What Is a Good CAGR?

There's no universal "good" number — it's only meaningful relative to the asset class and the risk you took to earn it. As rough long-run benchmarks:

Asset	Typical long-run CAGR
Savings account / fixed deposit	2–6%
Government / high-grade bonds	4–7%
Broad equity index (S&P 500, Nifty 50)	7–12%
Strong individual growth stocks	15%+ (with far higher risk)

Context matters by company stage too: a good CAGR for a mature company or small business in an established industry is often just 3–5%, while a good CAGR for a growth-stage company is 10–20%, and early-stage startups frequently target 50%+ to attract investors. A 9% CAGR from an index fund is excellent; the same 9% from a speculative small-cap you bet your savings on is a poor reward for the risk. Always read CAGR alongside how much volatility you stomached to get it, and over a stated window — a 3-year CAGR and a 5-year CAGR on the same stock can tell very different stories.

The Limitations of CAGR (Read This Before You Trust It)

It hides volatility. Two funds can share a 10% CAGR while one dropped 60% mid-way and the other rose steadily. CAGR can't tell them apart.
It assumes no cash flows. Standard CAGR uses only a start and end value. If you added money monthly (a SIP), CAGR overstates or understates your real return. This is the key CAGR vs IRR difference — IRR accounts for the timing of every deposit and withdrawal; see our CAGR vs IRR explainer and use XIRR-style SIP math for regular contributions.
It's backward-looking. A 15% historical CAGR is not a promise of 15% in the future.
It's sensitive to endpoints. Start or end on a market peak or trough and the number swings wildly. Always note the exact dates.

Calculate Your CAGR Instantly

The exponent math is awkward to do by hand, and easy to fumble. The CAGR Calculator takes your beginning value, ending value, and number of years and returns the exact compound annual growth rate in seconds — in any of 10 currencies. Use it to compare two funds, sanity-check a stock pitch, or set a realistic return assumption.

Once you have a CAGR you trust, plug it into the Lumpsum Calculator to project future value, or the SWP Calculator to see how long that growth rate can sustain withdrawals in retirement. To understand how regular contributions change the picture, read our SIP vs Lump Sum guide.

Disclaimer

All figures are illustrative and use simplified, assumed returns. Past CAGR does not predict future returns, which can be negative. This article is educational and not investment advice — consult a licensed financial advisor before making investment decisions.