CAGR Calculator

CAGR stands for Compound Annual Growth Rate. It is calculated by dividing the ending value by the beginning value, raising the result to the power of 1 divided by the number of years, and then subtracting 1. The formula gives the constant annual growth rate that would produce the same result as the actual uneven growth observed over the period.

The S&P 500 has delivered approximately 10 percent nominal CAGR and roughly 7 percent inflation-adjusted CAGR over rolling 30-plus-year periods dating back to the 1920s. Individual decade results vary widely, from negative real returns in the 2000s to over 18 percent nominal annual returns in the 1990s, which is why long holding periods matter for realizing returns close to the historical average.

The Rule of 72 is a quick mental math shortcut for estimating how long it takes to double an investment. Divide 72 by the annual growth rate percentage. At 8 percent CAGR, money doubles in about 9 years. At 6 percent, it takes about 12 years. The rule is accurate to within a year for rates between 3 and 20 percent.

Simple average annual return does not account for compounding, which can make a volatile investment look better than it actually performed. If an investment falls 50 percent one year and rises 50 percent the next, the average annual return is 0 percent but the actual result is a 25 percent loss. CAGR uses the actual start and end values, so it reflects the true compounded outcome rather than an arithmetic average that can be misleadingly high.