Compound Annual Growth Rate (CAGR) represents the smoothed annual growth rate of an investment over a specified period of time, assuming it grew at a steady exponential rate.

The Formula

The CAGR formula is:

CAGR = \left(\frac{EV}{BV}\right)^{\frac{1}{t}} - 1

Where:

  • EV = Ending Value of the investment
  • BV = Beginning Value of the investment
  • t = Time period in years

Why Use CAGR?

Investments fluctuate in value day-to-day or year-to-year. CAGR smoothes out the volatility, giving you a singular annualized percentage rate to compare different portfolios, business growth metrics, or real estate assets on equal footing.