GlossaryIntermediate
Compound Annual Growth Rate (CAGR)
The smoothed, constant annual growth rate that would take a beginning value to an ending value over a period, ignoring actual year-to-year volatility.
Compound Annual Growth Rate (CAGR) calculates the single, smoothed, constant annual growth rate that would take an investment from its beginning value to its ending value over a stated period, assuming steady compounding — it describes the overall path's destination, not what actually happened along the way.
Because CAGR smooths out actual volatility, two investments with identical CAGRs over the same period can have had very different, and very differently risky, paths to get there. See Kaavon's CAGR calculator for the full formula.
Examples
- An investment that fell 50% then rose 100% back to its starting value has a CAGR of 0% over that period, despite the large swings along the way.
- CAGR is useful for comparing the overall growth of different investments over the same period, but it hides the actual volatility each one experienced.