Find the single constant rate that converts your starting value into your ending value over time.
Constant-rate trajectory that reaches the same ending value.
CAGR answers the question: what constant annual growth rate, compounded, turns your starting value into your ending value over the given time?
The formula is CAGR = (EndValue / StartValue)^(1/years) − 1. This smooths over any volatility in between — it tells you the 'as if steady' rate equivalent to the actual (often bumpy) return path. We also show the total return (absolute dollar gain) and the total return percentage as sanity checks.
CAGR is the industry-standard way to describe long-term investment returns because it properly accounts for compounding. A fund that grew 50% one year and lost 30% the next did not average (50 − 30) / 2 = 10%. It actually produced (1.5 × 0.7)^0.5 − 1 = 2.5% CAGR — very different from the simple average.
The trick is that positive and negative returns are asymmetric in compound math. A 50% loss requires a 100% gain to break even; a 20% loss requires a 25% gain. Simple arithmetic averaging hides this asymmetry. CAGR captures it, which is why fund performance reports prominently feature CAGR (sometimes called 'annualized return') rather than average annual return.
CAGR is best used for comparing the long-term performance of different investments. A 7% CAGR over 10 years beats a 6% CAGR over the same period regardless of how volatile each ride was. But CAGR hides volatility — two investments with the same CAGR can have vastly different risk profiles. Complementary metrics like standard deviation, max drawdown, and the Sharpe ratio paint a more complete picture.
When looking at your own investment history, calculate CAGR over meaningful horizons. Annual CAGR is barely informative — a single good or bad year dominates. 3-year, 5-year, and 10-year CAGR values are far more useful for assessing whether your strategy is working.