The constant annual rate that would take an investment from its starting value to its ending value over a given period. The 'right' way to report multi-year returns.
Compound Annual Growth Rate is the constant annual rate that would take an investment from its starting value to its ending value over a given period. It's the standardised, fair way to report multi-year returns.
CAGR strips out year-to-year volatility and gives you the equivalent 'smooth' rate that produced the actual outcome.
CAGR = (FV / PV)^(1/n) − 1, where n is the number of years.
Example: S$10,000 grows to S$25,000 in 10 years. CAGR = (25000 / 10000)^(1/10) − 1 = 1.0959 − 1 = 9.59%.
Note: CAGR doesn't account for additional contributions during the period. For investments with deposits or withdrawals, use XIRR (Excel function) instead.
Simple average: sum yearly returns ÷ number of years. A fund that returns +50%, then -50% has a 0% simple average — but actually leaves you with S$75 from S$100 (a -25% total return).
CAGR for the same period: (75/100)^(1/2) − 1 = -13.4%. Honest representation of what happened.
Always prefer CAGR for multi-year reporting. Simple averages systematically overstate returns for volatile assets.
Comparing investments: a unit trust returned 12% CAGR over 10 years vs an ETF at 9% CAGR over the same period. Apples-to-apples comparison.
Retirement planning: at a planned 7% CAGR with S$2,000/month contributions, you'd reach ~S$1.2m in 30 years. Use this as a planning anchor, knowing actual sequence matters too.
Don't extrapolate short CAGRs: a 25% CAGR over 3 years says nothing about the next 30. Look for CAGR over a full market cycle (10+ years) before drawing conclusions.
Use the Compound Interest Calculator on this site to compute CAGRs, FVs, and required savings rates with the proper math.
Compound Annual Growth Rate — the constant annual rate that would take an investment from start to end value over a given period. The standardised, fair way to report multi-year returns. Strips out year-to-year volatility for clean comparison.
CAGR = (Ending value / Starting value)^(1/years) − 1. Example: S$10,000 grows to S$25,000 over 10 years. CAGR = (25000/10000)^(0.1) − 1 = 9.59%. For investments with periodic contributions, use XIRR (in Excel / Google Sheets) instead.
Simple averaging overstates returns for volatile assets. A fund that returns +50% then −50% has a 0% simple average but actually loses 25% (S$100 → S$150 → S$75). CAGR for the same period: (75/100)^0.5 − 1 = −13.4% — the honest annualised loss.
Historical 60/40 stocks/bonds (US-centric) ~7% – 8% nominal CAGR. 100% global equities ~9% – 10% nominal. CPF SA: 4% guaranteed. Inflation-adjusted (real) returns are roughly 4% – 7% depending on asset mix. Use these as planning anchors, not promises.