CAGR Calculator

CAGR (compound annual growth rate) is the single yearly rate that would grow a starting value to an ending value over a set number of years, as if it grew smoothly each year. The formula is CAGR = (ending value / beginning value)^(1 / years) − 1. It turns bumpy year-to-year returns into one number you can compare.

A simple average adds up the yearly returns and divides by the number of years, which overstates growth because it ignores compounding and ups and downs. CAGR reflects the actual compounded path, so a portfolio that gains 50% then loses 50% has a positive simple average but a negative CAGR, which is the truth of what happened to the money.

Real CAGR takes inflation out of the headline CAGR using real = (1 + headline) / (1 + inflation) − 1. A 10% CAGR at 6% inflation is only about 3.8% real. That real number is the rate at which your buying power actually grew, and it's the one that matters for long-term planning.

CAGR assumes a single amount invested at the start and measured at the end, with no money added or taken out in between. XIRR (extended internal rate of return) handles multiple cash flows on different dates, like a SIP where you invest every month, or a portfolio with top-ups and withdrawals. Use CAGR for a one-time lump sum and XIRR when there's a stream of contributions; comparing a SIP's return to a lump sum's CAGR isn't apples-to-apples.

Volatility drag is the gap between the simple average of yearly returns and the actual compounded (CAGR) result, caused by ups and downs. A loss hurts more than an equal-sized gain helps: lose 50% then gain 50% and you're still down 25%, even though the average looks like zero. The more a return bounces around, the wider this gap, which is why CAGR, the rate your money truly grew at, is always at or below the simple average.