How do I calculate CAGR?

Divide the ending value by the beginning value, raise to the power of one over the number of years, then subtract one. £10,000 to £18,000 over five years is 12.47 per cent.

What is the difference between CAGR and average return?

A simple average of yearly returns overstates growth because it ignores compounding. CAGR gives the rate that actually reproduces the end value.

Is a good CAGR 10 per cent?

Broad stock market returns have historically averaged around 7 to 10 per cent a year before inflation, which is the usual benchmark for long-term comparison.

Does CAGR account for deposits I made along the way?

No. It uses only the first and last values. For portfolios with contributions or withdrawals, IRR is the appropriate measure.

CAGR Calculator - Compound Annual Growth Rate

CAGR Calculator

CAGR turns total growth into an annual rate, which is the only fair way to compare investments held for different lengths of time.

Formula

CAGR = ( (end ÷ start)^(1 ÷ years) − 1 ) × 100

The smoothed annual rate that turns the start value into the end value
It says nothing about the path taken, or about volatility

£1,000 to £2,000 over 5 years: (2)^0.2 − 1 = 14.87% a year

The Formula

CAGR = (Ending value ÷ Beginning value)^1/years − 1

£10,000 growing to £18,000 over five years gives (1.8)^0.2 − 1 = 12.47% a year.

Multiply by 100 for a percentage. The result is the steady annual rate that would have produced the same outcome.

Why It Beats Total Return

Total return ignores time entirely. An 80% gain is outstanding over five years and unremarkable over twenty, yet both report 80%.

CAGR normalises for duration, which is why fund factsheets quote annualised figures. Comparing a 3-year holding against a 10-year one on total return alone is meaningless.

What CAGR Hides

CAGR describes a smooth path that almost never happened. An investment that fell 50% then tripled shows a healthy CAGR while having been a white-knuckle ride.

It uses only the first and last values, so it says nothing about volatility or the route taken. It also ignores deposits and withdrawals along the way — for those, money-weighted measures such as IRR are the right tool.

And remember it is nominal: a 12% CAGR with 3% inflation is roughly 9% in real terms.

Quick Reference

The same growth over different periods. Time changes everything.
Start	End	Years	CAGR
£1,000	£1,500	3	14.47%
£1,000	£2,000	5	14.87%
£10,000	£25,000	10	9.60%
£5,000	£4,000	4	−5.43%

Frequently Asked Questions

How do I calculate CAGR?: Divide the ending value by the beginning value, raise to the power of one over the number of years, then subtract one. £10,000 to £18,000 over five years is 12.47 per cent.
What is the difference between CAGR and average return?: A simple average of yearly returns overstates growth because it ignores compounding. CAGR gives the rate that actually reproduces the end value.
Is a good CAGR 10 per cent?: Broad stock market returns have historically averaged around 7 to 10 per cent a year before inflation, which is the usual benchmark for long-term comparison.
Does CAGR account for deposits I made along the way?: No. It uses only the first and last values. For portfolios with contributions or withdrawals, IRR is the appropriate measure.