Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
The smoothed, average yearly growth rate of an investment over a period, assuming profits are reinvested.
Definition: The smoothed, average yearly growth rate of an investment over a period, assuming profits are reinvested.
CAGR expresses how much an investment grew per year on a compounded basis, ironing out the bumps of volatile annual returns into one clean number. It is the standard way to compare the long-run performance of different investments because it accounts for compounding rather than just averaging yearly returns.
CAGR = (ending value ÷ beginning value)^(1/years) − 1.
An investment that grows from $10,000 to $20,000 over 9 years has a CAGR of about 8% — even if individual years ranged from −15% to +30%.
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