Compound annual growth rate of an investment.
CAGR
—
Total return
—
Value multiple
—
Your breakdown
Updates live as you type| Step | Value |
|---|
One number that hides a bumpy ride
Compound annual growth rate is the single smoothed yearly rate that connects where an investment started to where it ended. It pretends the money grew by the exact same percentage every year, which it almost never did. A PSX stock might surge 40% one year, drop 12% the next, then drift sideways, yet the CAGR irons all of that into one tidy figure. That is its strength and its blind spot at the same time. The calculator above asks for only three things, a starting value, an ending value, and the number of years, because that is genuinely all the math needs. It then raises the ending value over the starting value to the power of one divided by the years, and subtracts one.
Why it beats a plain total return for comparing investments
Suppose a relative tells you their plot of land in the outskirts doubled their money, and a friend says their mutual fund also doubled. Identical bragging rights, until you ask how long. If the land took eleven years and the fund took six, the fund grew your wealth much faster each year even though both ended at the same multiple. CAGR is what lets you place a three year holding next to a ten year holding on the same scale. That is also why it is the honest way to read a fund factsheet: a five year CAGR tells you far more than a headline cumulative return that quietly spans a long stretch.
Working through PKR 500,000 grown to PKR 1,200,000
Take the default values in the tool. You put in PKR 500,000, and six years later the position is worth PKR 1,200,000. That is a 2.40 times multiple and a total return of 140%, but spread across six years the steady annual rate is much gentler.
The smooth teal line below is what 15.71% a year looks like. Real holdings rarely trace that curve; they zigzag around it and land at the same endpoint.
The mistake that inflates the number
People often confuse CAGR with the simple average of yearly returns, and the two can diverge badly. Imagine a year of plus 50% followed by a year of minus 50%. The arithmetic average looks like zero, which sounds harmless. But PKR 100 becomes PKR 150, then falls to PKR 75, a real loss of a quarter of your capital. CAGR captures that pain because it is built on the actual start and end values, not on averaging the swings. Volatility always drags the compounded rate below the simple average, and the wilder the ride, the bigger that gap.
A practical caution before you trust the figure
CAGR says nothing about risk, nothing about whether you could have withdrawn money mid-way, and nothing about timing. Two funds can show an identical 15% CAGR while one slept soundly and the other lurched through gut-churning drawdowns. It also ignores anything you added or took out along the way; it assumes a single deposit at the start and a single value at the end. If you were drip-feeding money in monthly, CAGR is the wrong lens and a money-weighted return or an internal rate of return tells the truer story. Treat this tool as a clean comparison of point-to-point growth, not a full performance report.
Is CAGR a real return I actually earned?
No, and that is the point. It is a hypothetical constant rate, not a return that occurred in any single year. Your money may never have grown by 15.71% in a calendar year. CAGR is a summary statistic that lets you reason about long-run growth without getting lost in the year-by-year noise.
Does CAGR account for inflation?
Not on its own. The figure here is a nominal rate. With Pakistani inflation often running high, a 15.71% nominal CAGR can translate into a much thinner real gain once prices are stripped out. If you want the real growth in purchasing power, compute the CAGR first, then subtract roughly the average inflation rate over the same period for a quick approximation.