Question 1

What is CAGR in simple terms?

Accepted Answer

CAGR (Compound Annual Growth Rate) is the constant annual rate at which an investment would have grown if it compounded steadily over the full period. It smooths out year-to-year volatility to give you a single, comparable number.

Question 2

How do you calculate CAGR?

Accepted Answer

CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) − 1. For example, $10,000 growing to $46,610 over 20 years: (4.661)^(1/20) − 1 = 8.0% CAGR.

Question 3

What is a good CAGR for an investment?

Accepted Answer

It depends on the asset class. For US stocks, the historical average is ~10.4% (S&P 500 total return). Bonds average ~4.6%. Savings accounts average ~4.5%. A good CAGR is one that exceeds inflation (~3%) and meets your goals. Beating the S&P 500 over long periods is exceptionally difficult.

Question 4

Is CAGR the same as compound interest?

Accepted Answer

They describe the same math but from different angles. Compound interest is the mechanism (your money earning money on money). CAGR is the measurement (the single annualized rate that describes the total growth). A CAGR of 8% means compound interest worked at 8% per year on average.

Question 5

What is the difference between CAGR and average return?

Accepted Answer

Average return is the arithmetic mean of annual returns — it adds them up and divides by the number of years. CAGR is the geometric mean — it accounts for compounding. If you gain 50% one year and lose 50% the next, the average return is 0% but the CAGR is -13.4%. CAGR is always more accurate for measuring actual money outcomes.

Question 6

Can CAGR be negative?

Accepted Answer

Yes. If your ending value is less than your beginning value, CAGR is negative. A -5% CAGR over 10 years means your money shrunk by roughly 40% in total.

	5y	10y	15y	20y	25y	30y	40y
4%	1.2×	1.5×	1.8×	2.2×	2.7×	3.2×	4.8×
6%	1.3×	1.8×	2.4×	3.2×	4.3×	5.7×	10.3×
8%	1.5×	2.2×	3.2×	4.7×	6.8×	10.1×	21.7×
10%	1.6×	2.6×	4.2×	6.7×	10.8×	17.4×	45.3×
12%	1.8×	3.1×	5.5×	9.6×	17.0×	30.0×	93.1×
15%	2.0×	4.0×	8.1×	16.4×	32.9×	66.2×	267.9×

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