CAGR, or compound annual growth rate, is the steady yearly rate that would take a starting figure to an ending figure over a given number of years. The compound annual growth rate for anything - your salary, an investment, a company’s revenue. See the real, inflation-adjusted growth, not just the number that sounds impressive on its own.
CAGR answers: "what single, steady annual growth rate would take the start value to the end value?" It's CAGR = (End ÷ Start)1/years − 1 - a compounding formula, not a simple average. Going from 100 to 200 over 10 years is not 10%/year (that's the simple-average trap) - it's 7.18%/year compounded, because each year's growth builds on the year before. The gap between those two numbers grows with both the size of the change and the number of years.
A salary that grew from $65,000 to $82,000 over 5 years grew at 4.72% a year - sounds solid, until you check it against inflation. If prices rose 3.5% a year over the same stretch, the real growth - what that raises actually bought - was only about 1.18% a year. This tool shows both, using the same real-return method (nominal minus inflation, compounded correctly) verified elsewhere on this site's retirement calculator. If the real figure comes out negative, the honest read is that pay technically rose while purchasing power quietly fell. Most CAGR calculators stop at the nominal number and leave that check to you - this one runs it automatically, every time.
Base: any single before-and-after number - a salary, a savings balance, anything that moves from one figure to another over a set number of years - compared to inflation if you want the real, not just nominal, growth rate. Investment: add one row per holding with its own purchase date and price, and the calculator works out each one's own CAGR plus a purchase-price-weighted figure for the whole collection - useful when you are tracking a handful of stocks or funds bought at different times. Related: the NPV & IRR calculator and the XIRR calculator handle the case where money moves in and out at several different points in time and you want the one true rate that reconciles all of it, rather than a blended average of pre-annualized figures.
CAGR, or compound annual growth rate, is the constant yearly rate that would take a starting value to an ending value over a set number of years. It smooths out the ups and downs into one comparable figure.
Work out the CAGR of your salary, then compare it with average inflation over the same period. A rise from $85,000 to $92,000 over two years is 4.04% a year; against 3.4% inflation, the real gain is only about 0.62% a year.
Add each holding as its own row with its purchase date and price - the investment mode works out each one's own CAGR, then blends them into one figure weighted by how much you paid for each. The geometric mean is the more conservative of the two blended figures and is the one to trust when your holdings' growth rates differ a lot.
The average annual return usually means the simple arithmetic mean of each year's percentage change, and it can be seriously misleading because it ignores compounding. An investment that rises 50% one year and falls 50% the next averages 0% arithmetically, but the real outcome is a 25% loss - CAGR reflects what actually happened to the money; a simple average of percentages does not.
CAGR assumes a single starting value grows undisturbed to a single ending value, with nothing added or withdrawn in between. IRR handles money moving in and out at multiple points in time - a deposit added partway through, an income stream, a partial withdrawal. If your investment only had one start and one end, they give the same answer; if money moved more than twice, IRR is the correct tool.
Yes - a negative CAGR simply means the ending value was lower than the starting value, and it compounds the same way a positive CAGR does, just downward. A CAGR of -10% over 3 years means the value shrank at a steady 10% a year, not that it fell 10% total.
It is an average where bigger amounts count for more, instead of every number counting equally. $1,000 growing at 5% and $9,000 growing at 15% is not a 10% average - it is 14%, because the $9,000 holding makes up 90% of the money and so gets 90% of the say. A simple, unweighted average would wrongly treat a tiny holding and a huge one as equally important.
It is the average of several growth rates found by multiplying them together (as decimals plus one) and taking the root, rather than just adding them up and dividing. Growth rates of 10% and 40% give an arithmetic mean of 25%, but a geometric mean of 24.10% - close here, but the gap widens sharply the more the individual rates differ from each other. It is the correct way to average rates that compound, which is exactly what investment returns do.