What is CAGR?

Q: What is CAGR?

CAGR (compound annual growth rate) is the "smoothed" average annual return an investment has had over several years, as if it had grown at a constant pace. For example, an investment that goes from 10,000 € to 17,000 € in 5 years has a CAGR of 11.2%. It's the most honest way to compare long-term returns because it incorporates the effect of compound interest.

Q: What is a good CAGR for an investment?

As a reference, a CAGR of 7-10% is solid over the long term (in line with the S&P 500), 12-15% excellent and above 20% sustained is exceptional. What matters is comparing it with the risk taken on: a high CAGR with enormous falls isn't necessarily better.

Q: What's the difference between CAGR and average return?

The average return (arithmetic) sums the annual returns and divides them, which inflates the result with volatility. CAGR incorporates compound interest and reflects the real return. CAGR is always less than or equal to the arithmetic average.

Q: What is the historical CAGR of the S&P 500?

Historically, the S&P 500 has had an approximate CAGR of 9-10% a year for decades, including reinvested dividends. It's the reference against which any long-term strategy or fund is compared.

Q: What limitations does CAGR have?

Its main limitation is that it hides the volatility of the path: it only looks at the starting and ending points, not the intermediate falls. Two investments with the same CAGR may have had very different journeys. That's why it's worth reading it alongside the drawdown and the Sharpe.

Updated June 27, 2026 · DeepTicker

CAGR (compound annual growth rate) is the "smoothed" average annual return an investment has had over several years, as if it had grown at a constant pace. For example, an investment that goes from 10,000 € to 17,000 € in 5 years has a CAGR of 11.2%. It's the most honest way to compare long-term returns because it incorporates the effect of compound interest.

What CAGR is and why it matters

CAGR stands for *Compound Annual Growth Rate*, which in Spanish we call the compound annual growth rate. It answers a very concrete question: if an investment has grown irregularly over several years, at what constant annual pace would it have had to grow to reach exactly the same final result? It is, in essence, the annualized average return of an investment, but calculated the right way: taking compound interest into account, not as a simple arithmetic average.

The difference from the simple average is the key to everything, and it's where almost everyone goes wrong. Imagine a stock that gains 100% the first year and loses 50% the second. The arithmetic average would say: (100% - 50%) / 2 = +25% a year, how wonderful! But the reality is that if you put in 100 €, the first year you have 200 €, and the second you lose half: you're back to 100 €. Your real return is 0%. CAGR captures this reality and tells you 0%, while the simple average misleads you with +25%. That's why CAGR is the honest measure.

CAGR works because it incorporates compound interest, the famous "snowball" effect where returns in turn generate more returns. When an investment grows at a CAGR of 10%, it doesn't gain the same each year: it gains 10% on an ever-larger base. Ten years at 10% don't double the money, they multiply it by 2.59. Twenty-five years at 10% multiply it by almost 11. Understanding CAGR is understanding why time is the investor's best ally and why starting early matters so much.

It's essential not to confuse CAGR with total return. Total return tells you how much you've made in total over the whole period ("I've made 70%"); CAGR tells you what annual pace that equates to ("11.2% a year for 5 years"). Total return can't be compared between investments of different durations: making 70% in 5 years is far better than making 70% in 15 years. CAGR does allow comparison, because it brings everything to a common annual base.

CAGR has an important limitation worth always keeping in mind: it hides the volatility of the path. Two investments can have the same CAGR of 12% and have had completely different journeys, one rising smoothly and the other with 40% falls in between. CAGR only looks at the starting and ending points, not what happened in between. That's why it should never be read alone: it has to be accompanied by the maximum drawdown (the worst fall) and the volatility, to know not only how much you made, but what you suffered to achieve it.

In the real world, CAGR is the metric with which almost all long-term investments are measured and compared: funds, indices, portfolios and strategies. As a historical reference, the S&P 500 has had an approximate CAGR of 9-10% a year for decades (dividends included). Any strategy or fund is judged by whether it beats that reference CAGR adjusted for risk: making more than the market while taking on the same risk is generating alpha.

CAGR also serves to set realistic expectations and not fall for siren songs. If someone promises you a "guaranteed" CAGR of 40%, be wary: not even the world's best investors sustain it over decades. Warren Buffett, considered the best investor in history, has achieved a CAGR of around 20% for more than half a century, and that is absolutely exceptional. Having a clear reference of what CAGR is reasonable protects you from scams and from the expectations that lead to taking absurd risks.

How CAGR is calculated

CAGR = (Final value / Initial value)^(1 / number of years) - 1

· Final value: how much the investment is worth at the end of the period.
· Initial value: how much it was worth at the start.
· Number of years: the duration of the period in years (it can have decimals, e.g. 3.5 years).
· Exponent 1/years: the root that "spreads" the total growth into equal annual parts.
· Result: the equivalent constant annual rate, expressed per unit (multiply by 100 for the percentage).

Example of CAGR

Suppose you invested 10,000 € in a portfolio and, five years later, it's worth 17,000 €. The total return is 70%, but what CAGR does that equate to? We apply the formula: (17,000 / 10,000) raised to (1/5), minus 1. That's 1.7^0.2 - 1 ≈ 1.1124 - 1 = 0.1124, that is, a CAGR of 11.2% a year. Your portfolio has grown as if it had gained a constant 11.2% each year, although in practice some years it rose more and others less.

Now compare it with a second portfolio that also gained 70% in total, but took ten years to achieve it. Its CAGR would be (1.7)^(1/10) - 1 ≈ 5.5% a year. The same total return, but half the CAGR! This shows why you should never compare returns without taking time into account: the first portfolio was twice as efficient because it achieved the same in half the years.

DeepTicker's momentum strategy on mid caps aims for a CAGR above 20%, versus the 9-10% historical of the S&P 500, in exchange for taking on more risk (drawdowns of up to -30%). In your My Portfolio section, DeepTicker calculates your real CAGR alongside your alpha versus the S&P 500, your Sharpe and your maximum drawdown, just as a professional manager would. So you not only see how much you've made, but whether you've done it efficiently and by beating (or not) the market.

How to interpret CAGR

→CAGR is compound annualized return: the constant rate equivalent to irregular growth.
→Always ≤ arithmetic average: and the difference grows with volatility; that's why it's the honest measure.
→7-10% is solid, 12-15% excellent, >20% sustained is exceptional (Buffett level).
→Reference: S&P 500 ≈ 9-10% historical. Beating that adjusted for risk is generating alpha.
→It hides the volatility of the path: always read it alongside the drawdown and the Sharpe.
→Rule of 72: divide 72 by the CAGR to know in how many years you double your money.

Common mistakes with CAGR

✕Confusing CAGR with the arithmetic average: the average inflates the result when there's volatility; +100% and -50% gives an average of 25% but a CAGR of 0%.
✕Comparing total returns of different durations: +70% in 5 years is very different from +70% in 15 years; CAGR equalizes them.
✕Reading the CAGR without the drawdown: a high CAGR with 60% falls is very hard to maintain in practice.
✕Projecting retirement with unrealistic CAGRs (15-20%): use conservative figures (7-9%) so as not to save too little.
✕Believing in a "guaranteed" CAGR of 30-40%: not even the world's best investors sustain it; it's a sign of a scam or hidden risk.

What CAGR is considered good

There's no absolute "good" CAGR: it all depends on the risk taken on and what you compare it with. The key reference is the S&P 500, which has historically yielded 9-10% a year (with dividends). A CAGR above that figure, while keeping similar risk, is good; below it, you'd have been better off buying a simple index fund and forgetting about it.

As a guide: a CAGR of 7-10% is solid and realistic over the long term for a diversified portfolio. A CAGR of 12-15% sustained is excellent and within reach of few. A CAGR above 20% maintained over decades is the territory of legends (Buffett is around that level). And any "guaranteed" CAGR of 30-40% you're offered is, almost certainly, a warning sign of a scam or huge hidden risk.

The fundamental nuance is risk. A CAGR of 25% achieved with brutal volatility and 60% falls isn't necessarily better than a 12% achieved calmly: the first is very hard to maintain because most people panic-sell in the worst fall. That's why CAGR should always be read alongside the drawdown and the Sharpe. Making a lot while shaking is useless if you end up throwing in the towel at the worst moment.

CAGR versus average and total return

The most common mistake is confusing CAGR with the arithmetic average of the annual returns. The arithmetic average sums each year's returns and divides them; the problem is that it inflates the result when there's volatility, because it ignores the compound effect. As we saw, a sequence of +100% and -50% gives an average of +25% but a CAGR of 0%. CAGR is always less than or equal to the arithmetic average, and the difference grows with volatility.

Nor should CAGR be confused with total return. Total return is the percentage gained over the whole period ("+70%"); CAGR converts it into an annual rate ("+11.2% a year"). Total return is more impressive, but it doesn't allow comparison of investments of different durations. CAGR does, because it brings everything to a common annual base. When a fund boasts of "+250% since 2010", divide mentally: over 15 years that's a CAGR of barely 8.7%, nothing spectacular.

The most rigorous metric for a real portfolio, with contributions and withdrawals, is the TWR (Time-Weighted Return), which isolates the manager's skill from the effects of when you put in or took out money. DeepTicker calculates your TWR and your CAGR automatically, without you having to wrestle with spreadsheets, so you see your real annualized return in a professional and honest way.

How to use CAGR to project your investment

CAGR doesn't only look at the past: it serves to make realistic projections about the future (with the caveat that past returns don't guarantee future results). If you assume a CAGR of 9% and contribute money periodically, you can estimate what your portfolio will become in 10, 20 or 30 years. It's the basis of any long-term investment plan and of retirement planning.

A very useful mental rule derived from CAGR is the rule of 72: divide 72 by your CAGR and you get the approximate years it will take to double your money. At a CAGR of 9%, you double in about 8 years (72/9); at 12%, in 6 years; at 6%, in 12 years. It's a quick way to visualize the power of compound interest and to understand why a few extra CAGR points radically change the long-term result.

The practical message is twofold. First, time is your greatest ally: the sooner you start, the more years compound interest works in your favor. Second, be careful about overestimating CAGR: projecting your retirement assuming 20% a year when the realistic figure is 8-9% will lead you to save too little. Use conservative CAGRs to plan and enjoy it if you beat your expectations, not the other way around.

How to see your CAGR in DeepTicker

In DeepTicker, within My Portfolio, you don't have to calculate the CAGR by hand or know the formula: it calculates it for you from your trades and shows it annualized, alongside your total return, your TWR, your alpha versus the S&P 500, your Sharpe and your maximum drawdown. It's the complete battery of metrics a professional manager looks at, presented for you to understand without jargon or spreadsheets. My Portfolio is free forever.

What's valuable isn't just seeing the number, but seeing it in its risk context and versus the market. A CAGR of 14% sounds great until you discover that the S&P 500 did 16% in that same period with less risk: there your alpha is negative. DeepTicker teaches you to read your return as a professional would, always comparing it with the right reference and adjusted for risk, not in a vacuum.

This is DeepTicker's philosophy: widely recognized fundamental analysis methods, but made simple and transparent, with each number explained, so you learn by using it. Understanding CAGR protects you from unrealistic expectations and scams, helps you plan over the long term and lets you honestly judge whether your strategy works. This is not financial advice: it's information so you decide, always combining return, risk and comparison with the market.

On DeepTicker you get this metric calculated and explained for thousands of stocks, with no spreadsheets.

Try DeepTicker free →

Frequently asked questions about CAGR

What is a good CAGR for an investment?

As a reference, a CAGR of 7-10% is solid over the long term (in line with the S&P 500), 12-15% excellent and above 20% sustained is exceptional. What matters is comparing it with the risk taken on: a high CAGR with enormous falls isn't necessarily better.

How is CAGR calculated?

Divide the final value by the initial value, raise it to 1 divided by the number of years and subtract 1. For example, from 10,000 € to 17,000 € in 5 years: (1.7)^(1/5) - 1 = 11.2%. In DeepTicker it's calculated automatically from your trades.

What's the difference between CAGR and average return?

The average return (arithmetic) sums the annual returns and divides them, which inflates the result with volatility. CAGR incorporates compound interest and reflects the real return. CAGR is always less than or equal to the arithmetic average.

Does CAGR account for compound interest?

Yes, completely. CAGR assumes returns are reinvested and in turn generate more returns. That's why 10 years at 10% multiply the money by 2.59 and not just by 2. It's the essence of the snowball effect.

What is the historical CAGR of the S&P 500?

Historically, the S&P 500 has had an approximate CAGR of 9-10% a year for decades, including reinvested dividends. It's the reference against which any long-term strategy or fund is compared.

What limitations does CAGR have?

Its main limitation is that it hides the volatility of the path: it only looks at the starting and ending points, not the intermediate falls. Two investments with the same CAGR may have had very different journeys. That's why it's worth reading it alongside the drawdown and the Sharpe.

How do I project how much my investment will be worth with CAGR?

Multiply the initial capital by (1 + CAGR) raised to the number of years. A quick way is the rule of 72: divide 72 by the CAGR to know in how many years you double your money. Always use conservative figures when planning.

Educational content by DeepTicker. This is not financial advice or a recommendation to buy or sell. Investing involves risk of loss.