How is CAGR different from average annual return?

CAGR smooths out volatility into a single steady rate; a simple average of yearly returns can overstate actual growth because it ignores the effect of compounding on losses and gains.

CAGR Calculator

Investing

Calculate the Compound Annual Growth Rate between a beginning and ending value.

Display currency

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Beginning value

Ending value

Number of years

Compound Annual Growth Rate

How this is calculated

CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Years) − 1 — the smoothed annual growth rate that would take the beginning value to the ending value over the given period, even though actual year-to-year growth usually varies.

Frequently asked questions

How is CAGR different from average annual return?: CAGR smooths out volatility into a single steady rate; a simple average of yearly returns can overstate actual growth because it ignores the effect of compounding on losses and gains.

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