The annualized rate of return that an investment would have earned if it grew at a steady rate every year — used to compare strategies over time.
CAGR is the smoothed annual growth rate of an investment. It's what you'd get if your account grew at the same constant percentage every year to reach its current value. The formula: (ending value / starting value)^(1/years) − 1. CAGR is the standard way to measure long-term performance because it accounts for compounding.
CAGR strips out the year-to-year volatility and shows the underlying compounding rate. A strategy that goes +50%, −20%, +30% over three years has a CAGR of about 16% — not the simple average of 20%. Compounding works against you in losses faster than it works for you in gains.
CAGR alone isn't enough — pair it with max drawdown to evaluate quality. A 20% CAGR with 10% max drawdown is excellent. A 20% CAGR with 50% max drawdown is unsurvivable for almost everyone.
Warren Buffett's Berkshire Hathaway has a long-term CAGR of about 19.8% from 1965 to 2024 — versus the S&P 500's 10.2% over the same period. That gap is what makes Buffett one of the greatest investors ever.
Frequently asked about cagr (compound annual growth rate)
What is a cagr (compound annual growth rate) in trading?+
The annualized rate of return that an investment would have earned if it grew at a steady rate every year — used to compare strategies over time.
When will I see cagr (compound annual growth rate) used in real trading?+
On every long-term trading record, every fund prospectus, and every retirement planning calculator.
What is the most common mistake traders make with cagr (compound annual growth rate)?+
Using arithmetic average instead of CAGR. A strategy that goes +50%, −33% averages 8.5% but actually has a CAGR of 0%. Compounding mathematics punish losses harder than gains.
What do experienced traders know about cagr (compound annual growth rate) that beginners don't?+
Compare your CAGR to the S&P 500's long-term CAGR (~10%). If you can't beat that AFTER risk-adjusting, you're better off in index funds. Trading should add value, not just create work.
Read the lesson here. Mark the chart on TradingView. Compare brokers with the checklist.
TradingView is the chart workspace most learners already recognize: watchlists, alerts, drawings, and clean multi-market charts. Broker research stays methodology-first: jurisdiction, costs, platform, withdrawals, and risk before any account decision.