Portfolio returns
Express multi-year investment performance in a single number that smooths volatility. A 10 percent CAGR over five years means a 100 dollar investment becomes 161 dollars.
Definition
What is CAGR (compound annual growth rate)?
CAGR, compound annual growth rate, is the smoothed annualized rate that turns a starting value into an ending value over a fixed number of periods. The formula is the ending value divided by the starting value, raised to one over the number of years, minus one. Standard for multi-year returns.
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Short answer
Think of CAGR as the constant rate that, if applied each year, would have produced the actual ending value. It smooths out the bumps so two assets with very different volatility profiles can be compared on return alone. CAGR does not capture volatility or sequence-of-return risk, so always pair it with a drawdown or volatility figure when evaluating an investment strategy.
Where CAGR shows up
Business growth
Compare revenue, earnings, or free-cash-flow trajectories across companies with different fiscal calendars and time horizons. Best used over a full cycle.
Goal planning
Solve for required CAGR to hit a future financial goal from a starting principal. Anchor for retirement, education, and capital-formation arithmetic.
A worked example
An investment of 10,000 dollars grows to 25,000 dollars over ten years. CAGR equals 25,000 divided by 10,000, raised to the power of one tenth, minus one. That is 2.5 to the 0.1 power minus one, or roughly 9.6 percent annually. A traveler who started at the same time and compounded at 9.6 percent every single year would arrive at the same 25,000 dollar destination.
invest-like reports CAGR on every track-record window; see /methodology/.
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Related
- invest-like track record - CAGR is the headline metric on the public accuracy log; this is the live tracker.
- Seven-framework methodology hub - how CAGR enters revenue, earnings, and dividend growth tests across all seven framework rubrics.
See CAGR in track-record reasoning
invest-like reports a CAGR figure on every framework verdict and the long-run track-record dashboard.
Educational only. invest-like is not a registered investment adviser; nothing here is personalised investment advice. Always do your own research and consider your individual circumstances.