MoneyMath

CAGR / Investment Return Calculator

Compute the Compound Annual Growth Rate (CAGR) of any investment given its starting value, ending value, and the number of years it took. The cleanest way to compare investments of different sizes and durations.

12.14% /year

  • Total return: 150.00%
  • Multiple: 2.50×
  • Started with: £10,000.00
  • Ended with: £25,000.00

What CAGR is

CAGR is the constant annual growth rate that would have taken your starting balance to your ending balance over the given number of years, as if compounded once a year. It's a smoothed rate — it doesn't reflect the real year-by-year volatility, only the geometric average. The formula:

CAGR = (Ending / Starting)1/years − 1

Why CAGR beats “average return”

Average return (arithmetic mean) is misleading for investments. Say a £100 portfolio rises 50% one year and falls 50% the next. Average: zero. Reality: you have £75, a 25% loss. CAGR captures that: (75/100)1/2 − 1 ≈ −13.4%/year. Whenever you see a fund prospectus or a friend bragging about their portfolio, ask for CAGR, not the average.

Worked example

You invested £10,000 eight years ago and it's now worth £25,000. Multiple: 2.5×. Total return: 150%. CAGR = (25,000/10,000)1/8 − 1 = 2.50.125 − 1 ≈ 0.1214, or 12.14% per year. For comparison: the long-run average for US stocks is roughly 10% nominal, 7% real (after inflation). 12% sustained over a decade is a strong result; 12% sustained over four decades is rare.

Where CAGR breaks down

  • Cash flows in and out. CAGR assumes no deposits or withdrawals during the period. If you added or removed money, you want money-weighted return (IRR) or a more nuanced metric like the Modified Dietz formula.
  • Volatility is hidden. Two portfolios with the same CAGR can have wildly different risk. Pair CAGR with the maximum drawdown and standard deviation of returns to compare them honestly.
  • Short periods exaggerate. A 50% gain in one year is a 50% CAGR. A 50% gain over 30 years is a 1.4% CAGR. Time matters enormously to the headline number.
  • Past performance ≠ future returns. A 12% historical CAGR is not a forecast.

How to use CAGR practically

Use it to compare investments with very different scales or durations: a £5,000 stock that became £7,500 in 3 years versus a £50,000 fund that grew to £80,000 in 6 years. Plain returns can't tell you which did better per unit of time; CAGR can. (Answer: 14.5% vs 8.1% — the small stock won, despite the smaller absolute gain.)

Disclaimer

Educational only. CAGR is a mathematical summary, not a forecast or recommendation. Investment values can go down as well as up. Past performance does not guarantee future returns.