Explainer
CAGR Explained Using Stock History
CAGR is a smooth yearly rate that tells you how a starting value would grow into an ending value over a period. It helps compare different time spans, but it does not show the bumps along the way.
Published: December 26, 2025 · Updated: December 26, 2025 · By FinToolSuite Editorial
Disclaimer
- Educational purposes only, not financial advice.
- Examples are illustrative; results depend on your inputs and assumptions.
- Past performance is not a reliable indicator of future results; market returns can be negative.
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Open the Investment History Checker
Run a window, see CAGR, and compare it with total return, yearly breakdown, and drawdown.
Quick answer
- CAGR turns a start and end price into an average yearly growth rate.
- It is useful for comparing different date ranges.
- It can hide big drops, so read it alongside drawdown and yearly returns.
What CAGR means
CAGR is the constant yearly rate that would turn your starting value into your ending value over the selected period. It is not what happened each year—it is a smoothed rate to make comparisons easier.
The CAGR formula
CAGR = (End ÷ Start)^(1 ÷ Years) − 1Start is the beginning value, End is the ending value, and Years is the length of the period in years (fractional if needed).
Why CAGR can hide volatility
- A smooth number can hide sharp drops and slow recoveries.
- Two investments can have the same CAGR but very different rides.
See more on risk in max drawdown explained.
Worked example (illustrative)
Start 100, end 150 after 5 years. Using the formula, CAGR is roughly (150 ÷ 100)^(1 ÷ 5) − 1 ≈ 8.4% per year. Now consider a bumpy path that ends at the same 150:
- Year 1: 120
- Year 2: 80
- Year 3: 110
- Year 4: 130
- Year 5: 150
The end point is the same, but the ride included a big drawdown. CAGR alone does not show that path, which is why looking at drawdowns and yearly returns matters.
Use CAGR with other outputs
| Metric | What it tells you |
|---|---|
| Total return | Overall change |
| CAGR | Smooth yearly growth rate |
| Yearly table | Which years drove returns |
| Max drawdown | Worst peak to trough fall |
See how to read the yearly table in how to read the yearly breakdown table.
Common misunderstandings
- Assuming CAGR means you earned that rate every year.
- Comparing CAGR across different currencies without noticing.
- Ignoring dividends, fees, taxes, and inflation unless stated.
- Treating a short window CAGR as reliable.
Avoid common errors in Investment History Checker common mistakes.
Practical checklist when reading CAGR
- Check the date range length.
- Scan the worst years.
- Look at max drawdown.
- Rerun with a second window.
FAQ preview
Is CAGR the same as average yearly return?
No. CAGR is a smoothed rate that gets you from start to end; yearly returns can be higher or lower along the way.
Can CAGR be negative?
Yes, if the ending value is below the starting value over the period.
Why can two tickers have the same CAGR but different risk?
They can have similar end points but different drawdowns and yearly swings.
How long a window should I use?
Try more than one window. Short windows can mislead; compare a second range to see how stable the CAGR is.
Where do I see yearly returns in the tool?
Open the yearly breakdown table to see each calendar year’s start, end, and return.
Where do I see drawdowns?
Check max drawdown and the chart for the largest peak to trough drop.
Try it with your own dates
Run two windows, compare CAGR with total return, yearly table, and drawdown, and keep a snapshot for your notes.