Also called Compound annual growth rate, Annualized return

CAGR

Total return restated as a steady yearly rate, which makes runs of different lengths comparable.

Updated 2026-09-03

The compound annual growth rate is the smooth annual rate that would have produced the same final result. It converts a total return into a per-year figure so periods of different lengths can be compared.

CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1

It describes only the two endpoints. Everything that happened between them is invisible to it.

That last point is the whole caveat. A strategy that returned 15 percent a year with a 60 percent drawdown along the way and one that returned 15 percent a year in a straight line report exactly the same CAGR, and they are not the same strategy. One is investable and one is a thing you would abandon at the bottom.

CAGR is also acutely sensitive to the start and end dates. Beginning a backtest at a market bottom or ending it at a top can double the figure without changing a single rule. When someone quotes a CAGR, the first question is always what period it covers and why that period.

See also

  • Total return — What the account gained or lost across the whole test, start to finish.
  • Sharpe ratio — Return per unit of volatility. It asks how much turbulence you endured for the gain, so a smoother path scores better than a wild one that ends up level with it.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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