Investment CAGR Calculator
Work out the true annual return on an investment — the single growth rate that actually got you from start to finish, not the misleading average most people quote.
CAGR — the Compound Annual Growth Rate — is the smoothed yearly rate at which an investment grew from its starting value to its ending value, as if it had risen by exactly the same percentage every year. It answers the question that matters: “what annual return did I actually get?” Turn £10,000 into £16,000 over five years and your CAGR is 9.86% a year — the one rate that, compounded over those five years, produces the result. The reason CAGR matters is that the obvious alternative — averaging the yearly returns — can be badly wrong. A fund that gains 50% then loses 30% feels like it “averaged +10% a year”, but you’d actually have a CAGR of just 2.47%, because losses bite harder than gains of the same size. CAGR cuts through that, and you can run it in reverse too: work out the return you’d need to hit a target. In the UK, what you keep also depends on tax — gains inside an ISA are tax-free, while gains outside one can face Capital Gains Tax, lowering your real return. This calculator shows your CAGR, the reverse, and the after-tax picture. To project growth, see the Compound Interest Calculator; for tax on gains, the Capital Gains Tax Calculator.
Investment values
Cash flows
Costs and tax
Comparison
CAGR result
Annualised return
Calculating…
Calculating…
Simple CAGR
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Cash-flow adjusted
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After fees/tax CAGR
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Real CAGR
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Total return
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Target comparison
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CAGR — quick lookup
The left table shows the CAGR for a £10,000 investment growing to various end values over different periods — the actual annual return in each case. The right shows what selected CAGRs turn £10,000 into over 10 years, so you can read it either way. The key takeaway: CAGR is the one rate that, compounded each year, bridges your start and end values.
| End value | Years | CAGR |
|---|---|---|
| £16,000 | 5 | 9.86% |
| £20,000 | 7 | 10.41% |
| £20,000 | 10 | 7.18% |
| £25,000 | 10 | 9.60% |
| £9,000 | 3 | −3.45% |
| CAGR | End value |
|---|---|
| 3% | £13,439 |
| 5% | £16,289 |
| 7% | £19,672 |
| 10% | £25,937 |
CAGR is found from the start value, end value, and number of years — it ignores what happened in between, giving the single smoothed rate that links the two. A negative CAGR (like the £10,000 to £9,000 example) simply means the investment lost value over the period. The right-hand table runs the logic forwards: a known CAGR applied to £10,000 over a decade.
How CAGR works
CAGR sounds technical, but the idea is simple: it’s the steady annual rate that would have taken your investment from where it started to where it ended, ignoring the bumps along the way. Once you see the formula and why it beats a simple average, it’s a tool you’ll reach for constantly.
The formula
CAGR is worked out from just three numbers — your starting value, ending value, and the number of years. You divide the end by the start to get the total growth multiple, take the root for the number of years to annualise it, and subtract one to express it as a rate. It doesn’t matter how erratic the journey was; CAGR smooths it into one figure.
Why CAGR beats a simple average
The reason CAGR matters is that averaging yearly returns gives the wrong answer, sometimes wildly. Take a fund that gains 50% one year and loses 30% the next. The simple average looks like (50 − 30) ÷ 2 = +10% a year. But £10,000 actually becomes £15,000, then £10,500 — a true CAGR of just 2.47%. The gap exists because losses hit a bigger base than the gains that preceded them, so a percentage gain and an equal percentage loss don’t cancel out. CAGR captures this; the simple average hides it. This is why fund factsheets and serious investors quote CAGR, not averages.
Running it in reverse
CAGR also works backwards, which is where it becomes a planning tool. Instead of asking “what return did I get?”, you ask “what return do I need?”. If you have £10,000 and want £25,000 in ten years, rearranging the formula shows you need a CAGR of 9.60% a year. That instantly tells you whether a goal is realistic: a target needing 20% a year is a warning sign, while one needing 4% is comfortably within reach of typical long-term returns. It turns a vague hope into a concrete, checkable number.
Worked examples
Four scenarios: a straightforward CAGR, the average-versus-CAGR trap, a reverse calculation, and the UK tax effect on your real return.
Scenario 1 · A straightforward return
£10,000 to £16,000 in five years
(16,000 ÷ 10,000)^(1/5) − 1
CAGR: 9.86% per year
An investment that grows from £10,000 to £16,000 over five years delivered a compound annual growth rate of 9.86%. That single figure lets you compare it fairly against any other investment over any other period — something the raw 60% total gain can’t do, because it says nothing about how long it took. CAGR puts every investment on the same annual footing, which is exactly why it’s the standard way to express investment performance.
Scenario 2 · The average trap
“+10% a year” that was really 2.47%
Year 2: −30% (£15,000 → £10,500)
Simple average: +10%/yr · true CAGR: 2.47%/yr
This is the mistake CAGR exists to prevent. Averaging the two yearly returns gives a cheerful-looking +10% a year, but the money only grew from £10,000 to £10,500 — a real CAGR of 2.47%. The volatility quietly destroyed most of the apparent return, because the 30% loss applied to a larger balance than the 50% gain. Any time you see an “average annual return”, check whether it’s really a CAGR; if it’s a simple average of volatile years, it’s flattering the truth.
Scenario 3 · Reverse — the return you need
Hitting a £25,000 target
(25,000 ÷ 10,000)^(1/10) − 1
Required CAGR: 9.60% per year
Run the formula backwards and it becomes a reality check. Reaching £25,000 from £10,000 in a decade needs a 9.60% annual return — ambitious but not impossible for a long-term equity investment, though far from guaranteed. If the goal instead demanded 18% a year, that would be a clear signal to extend the timeframe, add contributions, or temper expectations. Knowing the required CAGR up front stops you building a plan on a return that history rarely delivers.
Scenario 4 · The UK tax effect
Gross 8.76% becomes net 7.69%
Gain £8,000, CGT 24% on (£8,000 − £3,000) = £1,200
Net £16,800 → net CAGR 7.69%
Your headline CAGR isn’t what you keep. A £10,000 investment growing to £18,000 outside an ISA produces an £8,000 gain; for a higher-rate taxpayer, Capital Gains Tax of 24% on the amount above the £3,000 allowance is £1,200, leaving £16,800. That drops your real, after-tax CAGR from 8.76% to 7.69%. Held inside an ISA, the whole gain is tax-free and you keep the full 8.76%. When comparing investments, it’s the after-tax CAGR that counts — see the Capital Gains Tax Calculator.
Using CAGR well — four things to check
CAGR is powerful, but it’s easy to read too much into a single number. These four checks turn it from a vanity figure into a genuinely useful one — and the last is pure UK:
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1
Is it a CAGR, or a simple average?
The biggest trap. A “10% average annual return” on volatile assets can hide a much lower CAGR — our example turned a claimed +10% into a real 2.47%. Always check which one you’re being shown, especially in marketing. CAGR tells the truth about what compounded; a simple average flatters it.
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2
Does CAGR hide the volatility?
CAGR smooths the journey into one rate, which is its strength — but it says nothing about the bumps along the way. Two investments with the same CAGR can have wildly different risk. Use it to compare returns, but look at the actual year-by-year path before judging how risky something was.
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3
Have you adjusted for inflation?
A nominal CAGR overstates what you really gained. An 8% CAGR with 3% inflation is a real CAGR of about 4.85% — that’s the growth in actual spending power. For long horizons especially, judge investments on their real, after-inflation CAGR, not the headline figure.
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4
Is the gain inside an ISA?
In the UK, tax decides what your CAGR is really worth. Gains outside an ISA can face Capital Gains Tax above the £3,000 allowance, cutting your after-tax CAGR. Inside an ISA, with its £20,000 annual allowance, the whole return is tax-free. Compare investments on after-tax CAGR.
Same £18,000 result — what your CAGR really is
£10,000 to £18,000 over 7 years, higher-rate taxpayer:
The same £18,000 outcome can be an 8.76% CAGR, a 7.69% after-tax one, or around 5.6% once inflation is stripped out — and which figure you use changes every comparison you make. That’s why a single headline CAGR is only the starting point. For most investors the sensible discipline is: confirm it’s a true CAGR not an average, remember it hides the ride, judge it in real terms after inflation, and in the UK look at what’s left after tax — which usually means using your ISA allowance to keep the gross and net figures the same. The calculator works out your CAGR, the reverse target, and the after-tax picture for your own numbers.
CAGR and compounding are the same idea
CAGR is really just compound interest viewed from the other end. Compound interest asks “if I invest £X at this rate, what will it become?”; CAGR asks “it became £Y, so what rate was that?”. They use the same maths — which is why a CAGR you calculate here can be dropped straight into the Compound Interest Calculator to project future growth, or into the Savings Goal Calculator to see what regular contributions at that rate would build. Understanding one makes the other obvious.
Two scenarios that change the picture
What if…
A fund advertises its “average” return?
What if…
You held the same investment in an ISA?
Key CAGR and return terms explained
CAGR sits among a cluster of return measures that sound alike but mean different things. The ten terms below cover what you’ll meet comparing investment performance.
- CAGR
- Compound Annual Growth Rate — the single smoothed annual rate that takes an investment from its start value to its end value, as if it grew by the same percentage every year.
- Simple average return
- The arithmetic mean of yearly returns, added up and divided by the number of years. It overstates the true return on volatile investments, which is why CAGR is preferred.
- Total return
- The overall percentage gain across the whole period — say +60% over five years. Useful, but it can’t be compared across different timeframes the way CAGR can.
- Annualised return
- Any return expressed as a per-year figure. CAGR is the most common annualised return for a lump sum held over multiple years, putting investments on a comparable footing.
- Nominal return
- The return before adjusting for inflation — the headline figure. It overstates how much your real spending power grew, especially over long periods.
- Real return
- The return after inflation, roughly (1 + nominal) ÷ (1 + inflation) − 1. An 8% nominal CAGR with 3% inflation is about 4.85% real — the figure that reflects actual buying power.
- Volatility
- How much returns swing year to year. CAGR deliberately ignores it, so two investments with the same CAGR can carry very different risk along the way.
- Capital Gains Tax
- UK tax on the profit when you sell an investment held outside an ISA — 18% basic, 24% higher, above the £3,000 allowance. It lowers your after-tax CAGR.
- ISA
- A wrapper in which gains, interest, and dividends are completely tax-free. With a £20,000 annual allowance, holding investments inside one preserves your full gross CAGR.
- After-tax CAGR
- Your CAGR recalculated on the net proceeds after any Capital Gains Tax. It’s the figure that genuinely matters when comparing investments held outside a tax wrapper.
Five mistakes people make with CAGR
CAGR is simple to misuse if you forget what it does and doesn’t tell you. These five errors, drawn from the recurring r/UKPersonalFinance and r/UKInvesting threads, are the common ones.
Confusing a simple average with CAGR
The classic error: treating an “average annual return” as if it were the compound rate. On volatile investments the average always overstates the truth — a claimed +10% can be a real 2.47% CAGR. Always derive CAGR from the start and end values, not from averaging yearly figures.
Cost: overestimating real performance Fix: calculate CAGR from start and end valuesTreating CAGR as a measure of risk
CAGR smooths out the journey, so it tells you nothing about volatility. Two investments with an identical 8% CAGR can have completely different risk — one steady, one a rollercoaster. Use CAGR to compare returns, but look at the year-by-year path to judge risk.
Cost: underestimating the ride’s risk Fix: check the year-by-year returns tooIgnoring inflation
A nominal CAGR overstates real gains. An 8% CAGR with 3% inflation is really about 4.85% in spending power. People judge investments on the headline figure and overestimate how much wealthier they’ve become. For long horizons, always look at the real, after-inflation CAGR.
Cost: overstating real wealth growth Fix: convert to a real CAGR after inflationForgetting tax outside an ISA
A gross CAGR isn’t what you keep if the investment sits outside an ISA. Capital Gains Tax on the profit above the £3,000 allowance can knock a percentage point or more off your return. Compare investments on after-tax CAGR, and use your ISA allowance to keep the two the same.
Cost: comparing gross figures unfairly Fix: use after-tax CAGR; shelter in an ISAAssuming past CAGR predicts the future
A strong historic CAGR is a record of what happened, not a forecast. Markets, rates, and conditions change, and past performance is no guide to future results. Use CAGR to understand and compare what an investment did, never as a promise of what it will do next.
Cost: planning on a return that may not repeat Fix: treat past CAGR as history, not a forecastFrequently asked questions
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It’s the single smoothed annual rate at which an investment grew from its starting value to its ending value, as if it had risen by exactly the same percentage every year.
It answers “what annual return did I actually get?” — turning £10,000 into £16,000 over five years is a CAGR of 9.86% a year. Because it annualises the return, CAGR lets you compare investments fairly across different amounts and timeframes.
How do I calculate CAGR?
The formula is (End value ÷ Start value)^(1 ÷ years) − 1. Divide the ending value by the starting value, raise the result to the power of one over the number of years, then subtract one.
For example, £10,000 growing to £16,000 over five years is (16,000 ÷ 10,000)^(1/5) − 1 = 9.86%. You only need three figures: the start value, the end value, and the number of years. What happened in between doesn’t affect the CAGR.
Why is CAGR better than an average return?
Because averaging yearly returns overstates the truth on volatile investments. A fund that gains 50% then loses 30% looks like it “averaged +10% a year”, but £10,000 only becomes £10,500 — a real CAGR of just 2.47%.
The gap exists because a percentage loss applies to a bigger balance than the gain before it, so equal gains and losses don’t cancel out. CAGR captures this compounding effect; a simple average ignores it, which is why serious investors and fund factsheets quote CAGR.
What is a good CAGR for an investment?
It depends entirely on the type of investment and the risk taken, so there’s no single “good” figure. Historically, broad equity markets have delivered long-run CAGRs somewhere in the high single digits before inflation, though with no guarantee and plenty of volatility.
What matters more is context: a CAGR should be judged after inflation and tax, against the risk taken and against a relevant benchmark. A high CAGR achieved with wild swings isn’t necessarily better than a steadier, lower one. This is general information, not advice on what to expect.
Can I use CAGR to work out the return I need?
Yes — that’s one of its most useful applications. Rearranging the formula lets you find the CAGR required to reach a goal. If you have £10,000 and want £25,000 in ten years, you’d need a CAGR of 9.60% a year.
This is a quick reality check: if a goal demands a return well above what investments historically deliver, it’s a sign to extend the timeframe, add contributions, or adjust expectations rather than rely on an unlikely rate. The calculator does this reverse calculation for you.
Does CAGR account for tax?
Not by default — a standard CAGR is a gross figure. In the UK, what you keep depends on where the investment is held. Inside an ISA, the gain is tax-free, so your after-tax CAGR equals the gross one.
Outside an ISA, Capital Gains Tax may apply to the profit above the £3,000 annual allowance — 18% or 24% depending on your income — which lowers your real return. A gross 8.76% CAGR can become 7.69% after CGT for a higher-rate taxpayer. Compare investments on after-tax CAGR.
How does inflation affect CAGR?
A normal CAGR is nominal — before inflation. To find the real CAGR, which reflects actual growth in spending power, you adjust for inflation: roughly (1 + nominal) ÷ (1 + inflation) − 1.
So an 8% nominal CAGR with 3% inflation is a real CAGR of about 4.85%. Over long periods this difference is large, so judging investments on their real return rather than the headline figure gives a truer picture of how much wealthier you’ve become.
What’s the difference between CAGR and compound interest?
They’re two sides of the same coin. Compound interest starts with a rate and projects forwards: “invest £X at this rate, what will it become?” CAGR starts with the result and works backwards: “it became £Y, so what rate was that?”
Both use the same compounding maths, which is why a CAGR you calculate can be fed straight into the Compound Interest Calculator to project future growth at that rate.
Related calculators
CAGR connects to projecting growth, setting goals, and the tax that shapes your real return. These calculators handle each piece.
Methodology & sources
How the maths works
The calculator uses the standard CAGR formula, CAGR = (end value ÷ start value)^(1 ÷ years) − 1, which gives the single annual rate that, compounded over the period, links the start and end values. It ignores the path in between, so it reflects only the net journey from first to last value. Run in reverse, it solves for the rate needed to reach a target: required CAGR = (target ÷ current)^(1 ÷ years) − 1. For the UK tax illustration, gains held inside an ISA are treated as tax-free, while gains outside one have Capital Gains Tax applied to the profit above the £3,000 annual exempt amount at 18% or 24%, and the after-tax CAGR is recalculated on the net proceeds. The real CAGR is approximated as (1 + nominal) ÷ (1 + inflation) − 1.
These are illustrative calculations to show how CAGR behaves, not a forecast or a guarantee. A historic CAGR describes what happened over a chosen period; it does not predict future returns, and investment values can fall as well as rise. CAGR deliberately smooths out volatility, so it says nothing about the risk taken along the way, and the after-tax figures depend on your own tax position and the current rates and allowances, which can change. The aim is to help you measure and compare investment returns and understand what affects what you keep — not to recommend any investment or imply a likely return.
Assumptions and conventions used
- CAGR: (end ÷ start)^(1 ÷ years) − 1
- Reverse: required CAGR = (target ÷ current)^(1 ÷ years) − 1
- Ignores the path between start and end values
- ISA gains: tax-free (£20,000 annual allowance)
- Outside ISA: CGT at 18% / 24% above the £3,000 allowance
- After-tax CAGR recalculated on net proceeds
- Real CAGR ≈ (1 + nominal) ÷ (1 + inflation) − 1
- Says nothing about volatility or risk
- Figures shown are illustrative, not predictions
Primary sources
Frequently asked questions
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It’s the single smoothed annual rate at which an investment grew from its starting value to its ending value, as if it had risen by exactly the same percentage every year.
It answers “what annual return did I actually get?” — turning £10,000 into £16,000 over five years is a CAGR of 9.86% a year. Because it annualises the return, CAGR lets you compare investments fairly across different amounts and timeframes.
How do I calculate CAGR?
The formula is (End value ÷ Start value)^(1 ÷ years) − 1. Divide the ending value by the starting value, raise the result to the power of one over the number of years, then subtract one.
For example, £10,000 growing to £16,000 over five years is (16,000 ÷ 10,000)^(1/5) − 1 = 9.86%. You only need three figures: the start value, the end value, and the number of years. What happened in between doesn’t affect the CAGR.
Why is CAGR better than an average return?
Because averaging yearly returns overstates the truth on volatile investments. A fund that gains 50% then loses 30% looks like it “averaged +10% a year”, but £10,000 only becomes £10,500 — a real CAGR of just 2.47%.
The gap exists because a percentage loss applies to a bigger balance than the gain before it, so equal gains and losses don’t cancel out. CAGR captures this compounding effect; a simple average ignores it, which is why serious investors and fund factsheets quote CAGR.
What is a good CAGR for an investment?
It depends entirely on the type of investment and the risk taken, so there’s no single “good” figure. Historically, broad equity markets have delivered long-run CAGRs somewhere in the high single digits before inflation, though with no guarantee and plenty of volatility.
What matters more is context: a CAGR should be judged after inflation and tax, against the risk taken and against a relevant benchmark. A high CAGR achieved with wild swings isn’t necessarily better than a steadier, lower one. This is general information, not advice on what to expect.
Can I use CAGR to work out the return I need?
Yes — that’s one of its most useful applications. Rearranging the formula lets you find the CAGR required to reach a goal. If you have £10,000 and want £25,000 in ten years, you’d need a CAGR of 9.60% a year.
This is a quick reality check: if a goal demands a return well above what investments historically deliver, it’s a sign to extend the timeframe, add contributions, or adjust expectations rather than rely on an unlikely rate. The calculator does this reverse calculation for you.
Does CAGR account for tax?
Not by default — a standard CAGR is a gross figure. In the UK, what you keep depends on where the investment is held. Inside an ISA, the gain is tax-free, so your after-tax CAGR equals the gross one.
Outside an ISA, Capital Gains Tax may apply to the profit above the £3,000 annual allowance — 18% or 24% depending on your income — which lowers your real return. A gross 8.76% CAGR can become 7.69% after CGT for a higher-rate taxpayer. Compare investments on after-tax CAGR.
How does inflation affect CAGR?
A normal CAGR is nominal — before inflation. To find the real CAGR, which reflects actual growth in spending power, you adjust for inflation: roughly (1 + nominal) ÷ (1 + inflation) − 1.
So an 8% nominal CAGR with 3% inflation is a real CAGR of about 4.85%. Over long periods this difference is large, so judging investments on their real return rather than the headline figure gives a truer picture of how much wealthier you’ve become.
What’s the difference between CAGR and compound interest?
They’re two sides of the same coin. Compound interest starts with a rate and projects forwards: “invest £X at this rate, what will it become?” CAGR starts with the result and works backwards: “it became £Y, so what rate was that?”
Both use the same compounding maths, which is why a CAGR you calculate can be fed straight into the Compound Interest Calculator to project future growth at that rate.
Related calculators
CAGR connects to projecting growth, setting goals, and the tax that shapes your real return. These calculators handle each piece.
Methodology & sources
How the maths works
The calculator uses the standard CAGR formula, CAGR = (end value ÷ start value)^(1 ÷ years) − 1, which gives the single annual rate that, compounded over the period, links the start and end values. It ignores the path in between, so it reflects only the net journey from first to last value. Run in reverse, it solves for the rate needed to reach a target: required CAGR = (target ÷ current)^(1 ÷ years) − 1. For the UK tax illustration, gains held inside an ISA are treated as tax-free, while gains outside one have Capital Gains Tax applied to the profit above the £3,000 annual exempt amount at 18% or 24%, and the after-tax CAGR is recalculated on the net proceeds. The real CAGR is approximated as (1 + nominal) ÷ (1 + inflation) − 1.
These are illustrative calculations to show how CAGR behaves, not a forecast or a guarantee. A historic CAGR describes what happened over a chosen period; it does not predict future returns, and investment values can fall as well as rise. CAGR deliberately smooths out volatility, so it says nothing about the risk taken along the way, and the after-tax figures depend on your own tax position and the current rates and allowances, which can change. The aim is to help you measure and compare investment returns and understand what affects what you keep — not to recommend any investment or imply a likely return.
Assumptions and conventions used
- CAGR: (end ÷ start)^(1 ÷ years) − 1
- Reverse: required CAGR = (target ÷ current)^(1 ÷ years) − 1
- Ignores the path between start and end values
- ISA gains: tax-free (£20,000 annual allowance)
- Outside ISA: CGT at 18% / 24% above the £3,000 allowance
- After-tax CAGR recalculated on net proceeds
- Real CAGR ≈ (1 + nominal) ÷ (1 + inflation) − 1
- Says nothing about volatility or risk
- Figures shown are illustrative, not predictions