CAGR is the constant annual rate that takes a start value to an end value in n years. The formula is (end ÷ start)^(1/n) − 1. It ignores the path in between — a smooth 10% every year and a wild ride that lands in the same place have the same CAGR. It is not a forecast.
CAGR10%
Total return61.05%
End ÷ start1.6105
How this calculation works
CAGR = (ending value ÷ starting value) raised to (1 ÷ years), minus 1. Multiply by 100 for a percent.
Total return is simply (end ÷ start − 1). That number can look huge over a long period while CAGR stays modest.
Years can be fractional (2.5). Start must be positive. A fall from 8,000 to 4,000 in two years is a negative CAGR of about −29.3%.
CAGR assumes compounding once per year. It does not add deposits or withdrawals; for a savings plan with contributions, use compound interest instead.
Worked example
Start 10,000, end 16,105, 5 years → CAGR = (1.6105)^(1/5) − 1 ≈ 10%. Total return is 61.05%, which is not “10% × 5”.
Frequently asked questions
Is CAGR the same as average annual return?
It is the geometric mean rate, not the arithmetic average of yearly returns. Arithmetic averages sit higher when returns bounce around.
Why not just divide total return by years?
Because growth compounds. 61% over five years is not 12.2% a year; the CAGR is about 10%.
Does this include dividends?
Only if you put them in the end value (total-return figures). Price-only start/end ignore cash paid out.
Can I use months?
Convert to years (18 months = 1.5). The exponent is 1/n in years.
How does this relate to the Rule of 72?
Rule of 72 estimates doubling time from a rate. CAGR goes the other way: from values and time to a rate. See the Rule of 72 calculator.