CAGR (Compound Annual Growth Rate)

By Greg Parsons, editor

Educational only, not financial advice.

CAGR is the smoothed, constant annual growth rate that would take an investment from its starting value to its ending value over a given period, assuming steady compounding. It's not the actual return in any single year — it's a simplified average.

Why it matters

• CAGR makes it easy to compare investments that grew over different time periods or with very different year-to-year volatility.
• It smooths out the ups and downs into one "as-if-steady" number, which is useful for comparison but can hide how bumpy the actual ride was.
• CAGR is a nominal figure unless explicitly adjusted for inflation — see Real Return for the inflation-adjusted version.

Simple example

• An investment that grows from $10,000 to $19,672 over 10 years has a CAGR of about 7%, even if actual yearly returns varied widely.
• Two investments can have the same CAGR but very different risk — one might have grown steadily, the other through wild swings that happened to average out to the same result.

Related terms

• Rate of Return
• Real Return
• Volatility

Learn more

• CAGR Calculator
• Compound Interest Guide