Compound Annual Growth Rate
(CAGR)

Calculate the growth rate of an investment over a period of time. Explanation of CAGR (Compound Annual Growth Rate).

CAGR - Compound Annual Growth Rate

Compound Annual Growth Rate is the average annual growth rate of an investment over a specified period of time.

CAGR is calculated by taking the Nth root of the total percentage growth rate where N is the Number of Years in the period being considered.

CAGR = ( ( End Value / Begin Value )^{(1 / N )}) - 1

It is a useful formula to evaluate how various investments or a portfolio has performed over time.
Can be used for comparing and for evaluating the performance of one stock against other stocks in a peer group or against a market index.

CAGR assumes that an investment grew at a steady rate. In reality there is volatility: investment results can vary significantly over time. This volatility, or investment risk, is important to consider when one makes an investment decision.
CAGR is a historical measure. Historical results are not always a reliable indicator of expected returns in the future.
CAGR is sensitive to the period which you consider and it can be easily manipulated: an investment fund may tell you that it achieved an impressive CAGR of 35% over the last three years, but the Begin Value may be taken at a the lowest point that the fund ever had.

CAGR assumes that an investment grows at a steady pace. This is normally not the reality. Therefore CAGR is an imaginary conception. It describes the growth of an investment as though it had grown at a steady pace.