Compound Annual Growth Rate - CAGR

Compound Annual Growth Rate - CAGR

The year over year growth rate of an investment over a specified period of time.

Calculated by taking the nth root of the total percentage growth rate where n is the number of years in the period being considered.

This can be written as:

Notes:

CAGR doesn't represent reality. It's an imaginary number that describes the rate at which an investment grew as though it had grown at a steady rate.

Don't worry if this concept is still fuzzy to you, CAGR is one of those terms best defined by example. The articles listed below in "related links" do an excellent job of demonstrating how this works using numerical examples and graphs.

See also: AAGR, Compounding, Growth Rates