CAGR is not the same as every-year performance
Compound annual growth rate smooths the path into one annualized number. It does not show volatility, drawdowns, cash-flow timing, taxes, fees or reinvested distributions unless those are already reflected in the end value.
Example
If an investment grows from $10,000 to $14,000 over 5 years with no added cash, CAGR is about 6.96% per year.
Common mistakes
Do not use CAGR to hide volatility. If cash was added or withdrawn during the period, simple beginning-to-end CAGR can misstate investor experience.
When to add cash added
If you contributed extra money during the period, enter it so the net-gain line does not treat all growth as investment performance. For precise performance reporting with irregular cash flows, use money-weighted or time-weighted return methods.
Last reviewed: 2026-05-17