CAGR represents the smoothed annual rate of return that an investment would need to grow from its initial value to its final value over a specified period. It eliminates the effect of volatility to show a consistent growth rate.
CAGR = (Ending Value / Beginning Value)^(1/n) - 1 where n = number of years
If you invested $10,000 and it grew to $15,000 over 3 years: CAGR = ($15,000/$10,000)^(1/3) - 1 = 14.47% per year.
CAGR smooths away volatility — it shows the "average" path, not the actual path. A CAGR of 10% over 10 years hides the fact that your portfolio may have dropped 40% in year 3 and 30% in year 8.
CAGR is meaningless for periods shorter than 3 years. Over 1-2 years, a single good or bad quarter dominates the entire calculation. Use absolute return for short periods.
Historical CAGR does not predict future CAGR. The S&P 500's 10% long-term CAGR includes decades of 0% returns (2000-2012) and decades of 15%+ (2010-2020). Starting valuation matters more than history.
AllInvestView shows CAGR on your portfolio dashboard and individual holding performance views. See our portfolio returns guide for more.
Average return is the simple mean of annual returns. CAGR is the compound rate — it accounts for the order and volatility of returns. CAGR is always lower than average return when returns vary.
CAGR assumes a single lump-sum investment. IRR accounts for multiple cash flows at different times. For a single investment with no additions or withdrawals, CAGR and IRR are identical.