Definition

CAGR (Compound Annual Growth Rate)

CAGR is the annualized rate that would turn a starting value into an ending value over a defined period.

Use annualized return correctly when comparing investments with different durations.

Last reviewed: 2026-03-03 | Review cycle: 120 days | Next review due: 2026-07-01

How It Works

CAGR converts total growth into a normalized yearly rate, which improves comparability across different holding periods.

It smooths volatility into one metric, so it should not be used alone when path risk and drawdowns are relevant.

Use CAGR for ranking and then validate with risk and cash-flow context before decisions.

Scenario

$50,000 grows to $80,000 over 5 years.

Outcome

CAGR gives the annualized growth rate that links those two values over five periods.

Scenario

Two projects both show 40% ROI but one takes 2 years and one takes 5 years.

Outcome

CAGR reveals the 2-year project has higher annualized efficiency.

ROI + CAGR Calculator

Measure total return (ROI) and annualized return (CAGR) from initial cost and final value.

ROI Calculator

Calculate absolute return and return on investment percentage from initial and final value.

Investment Growth Calculator

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Break-Even Holding Period for Investment Fees (Guide)

Understand how fees affect compounding and estimate break-even holding periods under different return assumptions.

ROI vs CAGR: Which Metric Should You Use?

Compare ROI and CAGR for total-return versus annualized-return interpretation.

Is CAGR the same as average annual return?

No. CAGR is geometric and typically differs from arithmetic averages when returns are volatile.

When is CAGR not enough?

When returns are irregular or risk path matters, additional metrics are needed.