What is CAGR and how is it worked out?

CAGR (compound annual growth rate) is the single yearly rate that would grow a starting value to an ending value over a set number of years, as if it grew smoothly each year. The formula is CAGR = (ending value / beginning value)^(1 / years) − 1. It turns bumpy year-to-year returns into one number you can compare.

What's the difference between CAGR and average return?

A simple average adds up the yearly returns and divides by the number of years, which overstates growth because it ignores compounding and ups and downs. CAGR reflects the actual compounded path, so a portfolio that gains 50% then loses 50% has a positive simple average but a negative CAGR, which is the truth of what happened to the money.

What is real CAGR (after inflation)?

Real CAGR takes inflation out of the headline CAGR using real = (1 + headline) / (1 + inflation) − 1. A 10% CAGR at 6% inflation is only about 3.8% real. That real number is the rate at which your buying power actually grew, and it's the one that matters for long-term planning.

Investing

CAGR Calculator

Find the compound annual growth rate (CAGR) between any two values, and the real CAGR once you take inflation out.

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Default inflation rate for Australia: 2.5% per year, based on Australian Bureau of Statistics (CPI) data (2026). You can override it in each calculator’s advanced options. See data sources for full citations.

Methodology: Mathematical FormulasData Sources: Inflation & Tax CitationsDisclaimer: Legal Disclosures

How We Work It Out

CAGR is the constant annual rate that links a start and end value:

CAGR = (V_end / V_begin)^1/n − 1

Real CAGR = (1 + CAGR) / (1 + i) − 1

Where: V_begin = starting value, V_end = ending value, n = number of years, and i = annual inflation rate.

Real-World Examples

An investment that doubled in 5 years

Growing $100,000 into $200,000 over 5 years is a CAGR of 14.87%. At 2.5% inflation, the real CAGR is about 12.07%, the rate at which your buying power actually grew.

Frequently Asked Questions (FAQ)

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Learn the concepts

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Beginner's Guide to Compound Interest and SIPs

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