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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Compound Annual Growth Rate. The average yearly growth rate of an investment over a specific period.
Why It Matters
CAGR smooths out volatile returns into a single annual number, making it easy to compare investments. If your portfolio went from $10,000 to $25,000 over 10 years, the CAGR is about 9.6% - even if some years were up 30% and others down 15%. It's the standard way to compare funds, stocks, and asset classes over time.
Key Points
- Calculate it: (Ending Value / Beginning Value)^(1/Years) - 1
- The S&P 500 has a CAGR of roughly 10% since 1926 (before inflation)
- CAGR ignores volatility - two investments with the same CAGR can have very different risk profiles
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Related Terms
Common Questions
Compound Annual Growth Rate. The average yearly growth rate of an investment over a specific period. CAGR smooths out volatile returns into a single annual number, making it easy to compare investments. If your portfolio went from $10,000 to $25,000 over 10 years, the CAGR is about 9.
CAGR smooths out volatile returns into a single annual number, making it easy to compare investments. If your portfolio went from $10,000 to $25,000 over 10 years, the CAGR is about 9.6% - even if some years were up 30% and others down 15%. It's the standard way to compare funds, stocks, and asset classes over time.
Calculate it: (Ending Value / Beginning Value)^(1/Years) - 1
The S&P 500 has a CAGR of roughly 10% since 1926 (before inflation)
CAGR ignores volatility - two investments with the same CAGR can have very different risk profiles