How this number is made
CAGR is the steady yearly rate that would carry a starting value to an ending value. It hides the path. A portfolio that fell by half and recovered can show the same CAGR as a smooth one. Contributions during the period do not belong in the ending value unless you want a distorted rate.
- Starting and ending values should be the same holding, with no money added or removed.
- Years can be fractional. Two and a half years is 2.5.
Formula
CAGR = (ending ÷ starting) ^ (1 ÷ years) − 1.
Worked example
With the figures already in the form, compound annual growth is 8.76%.
Questions
What if I added money every year?
This rate will look worse or better than the investments actually did. Use IRR when cash moved in or out.
Can the result be negative?
Yes. An ending value below the start is a negative CAGR.