How CAGR works
The compound annual growth rate answers a simple question: if your investment had grown by the exact same percentage every single year, what rate would take the starting value to the ending value over the period? It smooths out the bumps of real markets into one steady rate, which is why it is the standard way to summarize long-run performance.
Because it compounds, CAGR is not the same as adding up yearly returns and dividing. A fund that gains 50% one year and loses 50% the next has not broken even — it has lost money — and CAGR captures that, whereas a plain average would mislead you.
Reading the result and the chart
The headline CAGR is your effective annual growth rate. The total return shows the cumulative percentage change across the whole period, ignoring how the years were split.
The growth chart projects the smoothed path: it starts at your starting value and rises at the CAGR each year until it lands on your ending value. Real performance rarely follows this straight-ish curve — it is the idealized line that the single CAGR figure represents.
Tips and caveats
CAGR is a clean summary, but it hides as much as it reveals.
- It says nothing about volatility — two investments can share a CAGR yet have wildly different year-to-year swings and risk.
- It ignores deposits and withdrawals along the way; for cash flows in and out, an internal-rate-of-return measure fits better.
- Short periods exaggerate. A high CAGR measured over one or two years can be luck rather than a durable trend.
- It does not adjust for inflation or fees by default, so a nominal CAGR overstates your real, spendable gain.
A note on scope
This tool is for education and rough comparison, not financial advice. Past growth does not predict future results, and the projected curve is an illustration of the computed rate, not a forecast. Verify figures and consider professional guidance before making investment decisions.
Formula
CAGR = ((endValue/startValue)^(1/years) − 1) · 100