CAGR Calculator
Understanding CAGR
CAGR (Compound Annual Growth Rate) is a measure that represents the mean annual growth rate of an investment over a specified time period longer than one year. It is one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time.
How CAGR Works
CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1/n) - 1
Where n is the number of years
- Beginning Value: The initial investment amount
- Ending Value: The final value of the investment
- n: Time period in years
Advantages of CAGR
- Provides a single growth rate that smooths out volatility
- Easy to compare investments of different types
- Takes into account the time value of money
- Widely used in business and financial analysis
CAGR vs. Absolute Returns
Understanding the Difference
While CAGR shows the annual growth rate, absolute return simply measures the total percentage gain or loss over the entire period. CAGR provides a more accurate picture of year-over-year growth and is especially useful when comparing investments over different time periods.
Limitations of CAGR
- Assumes steady growth over the period
- Doesn't show investment volatility
- May not reflect reality for investments with variable returns
- Doesn't account for investment timing or cash flows
Other Calculators
Investment Tips
- ✓ Consider long-term investment horizons
- ✓ Diversify your investment portfolio
- ✓ Account for inflation in returns
- ✓ Review and rebalance periodically
- ✓ Understand risk-return relationship
Common Investment Types
Mutual Funds
Professional management and diversification benefits.
Stocks
Direct company ownership with growth potential.
Fixed Deposits
Stable returns with lower risk profile.