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Page written by Ian Hawkins. Last reviewed on March 6, 2026. Next review due April 6, 2027.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
CAGR, or Compound Annual Growth Rate, is a measure used to calculate the annual growth rate of an investment over a specified period, assuming the investment has grown at a steady rate each year. It provides a smoothed annual growth rate, taking into account the effect of compounding.
To calculate the compound annual growth rate (CAGR), follow these steps:
Find the beginning and ending values: Determine the initial value of your investment or asset (beginning value) and its final value (ending value) after a specific period.
Calculate the total return: Subtract the beginning value from the ending value to find the total return or total growth of the investment.
Total Return = Ending Value – Beginning Value
Determine the number of periods: Identify the number of periods (usually years) over which the investment grew. For example, if you’re analyzing a 5-year investment, there are 5 periods.
Calculate the CAGR: Use the formula:
CAGR = (Ending Value / Beginning Value)^(1 / Number of Periods) – 1
Where:
Convert to percentage: Multiply the result by 100 to express the CAGR as a percentage.
The concept of a “good” CAGR can vary depending on factors such as investment goals, risk tolerance and market conditions. Generally, a higher CAGR indicates stronger growth and better investment performance.
To forecast future performance using CAGR, first, calculate the CAGR using historical values. Then, apply this growth rate to project future values over the desired period. It’s important to note that CAGR assumes constant growth, which may not always be the case.
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