Find the smoothed annual growth rate of an investment between two points in time.
The Compound Annual Growth Rate (CAGR) is the average yearly growth rate of an investment over a period of time, assuming profits are reinvested each year. It smooths out volatility so you can compare different investments on equal footing.
CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Years) - 1
An investment that grows from $10,000 to $18,000 over 5 years has a CAGR of (18000/10000)^(1/5) - 1 ≈ 12.47% per year, even though the actual year-to-year returns may have varied.
Compound Annual Growth Rate shows the smoothed, year-over-year growth rate an investment would need to go from its starting value to its ending value over a set period.
CAGR = (ending value divided by starting value) raised to the power of (1 divided by number of years), minus 1.
CAGR accounts for compounding, giving a more realistic single growth figure than a simple average of yearly returns, which can be misleading with volatile year-to-year performance.