Here is how to calculate CAGR over 5 years, or any other period: enter the beginning value, ending value and number of years, and the tool turns uneven growth into one comparable compound annual growth rate.
How to Calculate CAGR Over 5 Years
Divide the ending value by the beginning value, raise that to the power of 1 ÷ 5, and subtract 1. For $10,000 growing to $18,000 over 5 years, 1.8^0.2 − 1 ≈ 12.5% a year, even though total growth is 80%. Use the same method on two investments to compare them fairly.
- Divide ending by beginning value: $18,000 ÷ $10,000 = 1.8.
- Raise it to 1 ÷ 5: 1.8^0.2 = 1.1247.
- Subtract 1: 0.1247, or 12.5% a year.
The CAGR Formula and the Number of Years
The number of years sets the exponent: 1/5 for five years, 1/3 for three, 1/10 for ten. CAGR smooths an investment’s uneven year-to-year swings into one steady annual rate, so you can compare returns across different holding periods on equal footing.
Formula: CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1.
To calculate CAGR in an Excel formula, put the beginning value in A2 and the ending value in B2, then use =(B2/A2)^(1/5)-1 for five years and format the cell as a percentage.
- Beginning value: what your investment was worth at the start of the period
- Ending value: what your investment is worth at the end of the period
- Number of years: how many years passed between the beginning and ending values
How to Calculate CAGR Over 3 Years and Other Periods
| Beginning Value | Ending Value | Years | CAGR |
|---|---|---|---|
| $10,000 | $18,000 | 5 | 12.5% |
| $5,000 | $10,000 | 10 | 7.2% |
| $20,000 | $20,000 | 3 | 0.0% |
| $1,000 | $2,000 | 3 | 26.0% |
| $10,000 | $15,000 | 4 | 10.7% |
CAGR vs Average Annual Return
They are not the same, and the average is usually higher when returns vary. A gain of 50% followed by a loss of 50% averages 0%, but $100 ends at $75, a CAGR of about −13.4%. CAGR answers one narrow question: what steady rate would turn the starting value into the ending value.
- Volatility is hidden: two investments with the same CAGR may have taken very different paths.
- Deposits and withdrawals distort it. If you added or took out money during the period, CAGR on the start and end balances will misstate your return, and a money-weighted measure such as IRR fits better.
- Fees and dividends matter. Use the same dates for each investment, and note that price alone understates total return for dividend-paying assets.
Past growth does not predict future growth, so treat any CAGR calculator result as a description of history, not a forecast or personal advice. The compound annual growth rate article on Wikipedia shows the formula. Try different start and end dates to see how sensitive the figure is.
Common questions about CAGR
How do you calculate CAGR over 5 years?
Divide the ending value by the beginning value, raise the result to the power of 1/5 (0.2), then subtract 1. For $10,000 growing to $18,000: 1.8^0.2 − 1 = 12.5% a year.How do you calculate CAGR over 3 years?
Use the same formula with 1/3 as the exponent. $1,000 growing to $2,000 in 3 years gives 2^(1/3) − 1 = 26.0% a year.What is the difference between CAGR and average annual return?
A simple average adds up each year’s return and divides by the number of years, while CAGR is the single steady rate that takes the beginning value to the ending value. CAGR is usually lower than the simple average when returns are volatile.Can CAGR be negative?
Yes. If your ending value is lower than your beginning value, the result is a negative CAGR, reflecting an overall decline across the period.How can I use CAGR to compare two different investments?
Work out the CAGR for each one using its own beginning value, ending value and time period, then compare the percentages directly. Because CAGR is annualized, it works even when the two were held for different lengths of time.Does CAGR include dividends and reinvested distributions, or just price growth?
That depends on what you enter. Total account value including reinvested dividends gives total return, while price alone gives price appreciation only.Related Calculators
To dig deeper into an investment’s performance, pair this with the ROI calculator or the compound interest calculator, or use the investment calculator to project future growth at a chosen rate.