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Glossary · Investing and personal finance

CAGR

CAGR (compound annual growth rate) is the steady yearly rate that would take a starting value to an ending value over a period, as if growth had been smooth.

Also called: compound annual growth rate, annualized return, geometric average return

Live numbers, updated every night

S&P 500 CAGR, last 10 years
15.5%

Dividends reinvested, Oct 2016 to Oct 2026. Last 30 years: 10.2%.

S&P 500 CAGR since 1871
9.4%

With dividends, before inflation.

In plain words

Your savings grew from $10,000 to $16,000 in 5 years. Some years were great, one was bad, but what was the growth per year? The answer is the compound annual growth rate, or CAGR: the one steady rate that would have taken $10,000 to $16,000 in 5 years. Here it is 9.86% a year.

CAGR ignores the bumps on the way and looks only at the start, the end and the time between. That makes it a fair way to compare investments over different periods, and it is what “returned 10% a year” usually means.

It is not the same as the average of the yearly returns. If an investment gains 50% one year and loses 50% the next, the average is 0%, but you are down 25%: the CAGR is −13.4% a year.

Example

From $10,000 to $16,000 in 5 years

  1. Divide the end by the start: $16,000 ÷ $10,000 = 1.6.
  2. Take the 5th root, that is, raise it to the power 1 ÷ 5: 1.60.2 = 1.0986.
  3. Subtract 1: 9.86% a year.
  4. Check: $10,000 × 1.09865 = $16,000.

The formula: CAGR = (end ÷ start)1 ÷ years − 1.

One level deeper

CAGR is a geometric average. The ordinary (arithmetic) average of yearly returns is always at least as high, and the gap grows with the swings. For the S&P 500 from 1872 to 2025, the average calendar-year return with dividends was 10.9%, but the CAGR over the same years was 9.3%. Your money grows at the CAGR.

The bigger the swings, the bigger the gap, which is why two investments with the same average return can end far apart. A rough rule: CAGR ≈ the average return minus half the square of the yearly swings.

CAGR depends a lot on the start and end dates. Over the last 10 years the S&P 500 returned 15.5% a year; over 20 years 11.1%; over 30 years 10.2%. A start at a peak or an end at a low can change it a lot, so check the dates before comparing. When money is added or taken out along the way, the account’s growth is measured with a money-weighted return (the internal rate of return) instead.

The S&P 500’s CAGR over every 10-year stretch

Each point is the compound annual growth rate, dividends reinvested, of the 10 years ending that month. The best stretch returned 21.2% a year (to Jun 1959); the worst −4.0% a year (to Aug 1939). 3% of all 10-year stretches lost money.

S&P Composite total return, monthly averages, before inflation, taxes and fees. Each point: the 10 years ending that month.
The numbers behind the chart
Date10-year CAGR
Jan 18819.9%
Dec 18902.7%
Dec 19008.7%
Dec 19107.5%
Dec 19203.2%
Dec 193014.4%
Dec 19401.8%
Dec 195012.8%
Dec 196016.3%
Dec 19708.1%
Dec 19808.4%
Dec 199013.9%
Dec 200017.6%
Dec 20101.2%
Dec 202013.8%
Dec 202212.7%
Dec 202312.0%
Dec 202413.3%
Dec 202514.7%
Oct 202615.5%

Why it matters

It lets you compare things that grew over different periods: a fund’s 5-year record, a house bought 20 years ago, a country’s economy.

It is the honest number for growth: an average of yearly returns flatters anything that swings.

Put it into the rule of 72 and you get a doubling time.

A common mistake

Myth: An investment that rose 50% and then fell 50% is back where it started.

In fact: It is down 25%: $100 → $150 → $75. The average of +50% and −50% is 0%, but the CAGR is −13.4% a year. Losses weigh more than gains of the same size, which is why deep drawdowns hurt so much.

Questions people ask

How do you calculate CAGR?

Divide the ending value by the starting value, raise the result to the power of 1 ÷ the number of years, and subtract 1. In a spreadsheet: =(end/start)^(1/years)-1. From $5,000 to $8,000 in 6 years: 1.61/6 − 1 = 8.1% a year.

What is a good CAGR?

It depends on the risk taken. Over the last 30 years the S&P 500 returned 10.2% a year with dividends. Since 1871, it returned 9.4% a year. Safe cash in Treasury bills earned 3.5% a year since 1934.

What is the difference between CAGR and average annual return?

The average annual return adds up each year’s return and divides by the number of years. CAGR is the steady rate that gives the same end result. With ups and downs the average is always higher: for the S&P 500 since 1872, 10.9% against a CAGR of 9.3%.

Read more on BigCapital

ArticleAverage stock market returnEvery year since 1871ArticleCompound interest calculatorYour numbers, plus a century of real returnsDataS&P 500Price, total return and CAGR since 1871ToolTime MachineThe return a year from any month since 1871

About the numbers

  • The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
  • 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
  • S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
  • This page explains a term. It is not investment advice.