Dave Ramsey Compound Interest Calculator

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Compound Annual Growth Rate (CAGR) Calculator

Enter your investment details to calculate the Compound Annual Growth Rate (CAGR).

function calculateCAGR() { var initialValue = parseFloat(document.getElementById('initialValue').value); var finalValue = parseFloat(document.getElementById('finalValue').value); var years = parseFloat(document.getElementById('years').value); var resultDiv = document.getElementById('cagrResult'); if (isNaN(initialValue) || isNaN(finalValue) || isNaN(years)) { resultDiv.innerHTML = 'Please enter valid numbers for all fields.'; return; } if (initialValue <= 0) { resultDiv.innerHTML = 'Starting Investment Value must be greater than zero.'; return; } if (years <= 0) { resultDiv.innerHTML = 'Number of Years must be greater than zero.'; return; } // Handle cases where the ratio is negative and years is even, which results in NaN for Math.pow if ((finalValue / initialValue) < 0 && years % 2 === 0) { resultDiv.innerHTML = 'Cannot calculate CAGR for a negative ratio over an even number of years.'; return; } var cagr = (Math.pow((finalValue / initialValue), (1 / years)) – 1) * 100; if (isNaN(cagr)) { resultDiv.innerHTML = 'An error occurred during calculation. Please check your inputs.'; return; } resultDiv.innerHTML = '

Calculated CAGR:

The Compound Annual Growth Rate (CAGR) is: ' + cagr.toFixed(2) + '%'; }

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a useful metric for evaluating the performance of an investment or business over a specific period. Unlike simple annual growth, CAGR smooths out volatility by assuming that the investment grew at a steady rate over the entire period, compounding annually.

What is CAGR?

CAGR represents the average annual growth rate of an investment over a specified period longer than one year, assuming the profits are reinvested at the end of each year. It provides a more accurate picture of an investment's performance than a simple average, especially when growth rates fluctuate significantly from year to year.

Why is CAGR Important?

  • Performance Comparison: It allows for easy comparison of different investments over varying time horizons.
  • Trend Analysis: Helps in understanding the underlying growth trend of a business or asset, removing the noise of short-term fluctuations.
  • Forecasting: Can be used as a basis for projecting future growth, though past performance is not indicative of future results.
  • Investment Evaluation: Essential for investors to assess the effectiveness of their strategies and the returns generated by their portfolios.

How to Use the CAGR Calculator

Our CAGR calculator simplifies the process of determining this crucial metric. Here's how to use it:

  1. Starting Investment Value: Enter the initial amount of your investment or the value of the asset at the beginning of the period.
  2. Ending Investment Value: Input the final value of your investment or asset at the end of the period.
  3. Number of Years: Specify the total duration of the investment in years.

Click the "Calculate CAGR" button, and the calculator will instantly display the compound annual growth rate for your inputs.

Example Calculation

Let's say you invested $10,000 five years ago, and today its value is $15,000. Using the calculator:

  • Starting Investment Value: $10,000
  • Ending Investment Value: $15,000
  • Number of Years: 5

The calculator would determine the CAGR to be approximately 8.45%. This means your investment grew at an average annual rate of 8.45% over those five years, assuming annual compounding.

Limitations of CAGR

While powerful, CAGR has limitations:

  • It assumes a smooth growth rate, which rarely happens in reality.
  • It doesn't account for interim deposits or withdrawals.
  • It doesn't reflect the volatility or risk associated with the investment.

Despite these limitations, CAGR remains a fundamental tool for long-term investment analysis.

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