What Is a Good CAGR? Benchmarks for Stocks and Portfolios

A good CAGR depends on what you are measuring, but the reference points are concrete. For a broad US stock portfolio, the long-run benchmark is roughly a 10% nominal CAGR (about 7% after inflation), which is what the S&P 500 has compounded historically. Beating that consistently over a full market cycle is genuinely hard, so a personal-portfolio CAGR in the high single digits to low teens is solid, the low-to-mid teens is strong, and anything advertised above 20% for years on end deserves hard scrutiny before you believe it.

What CAGR actually measures

CAGR stands for compound annual growth rate: the single smoothed yearly rate that would take a starting value to an ending value over a number of years, as if it grew by the same percentage every year. It answers "what steady annual return would produce this result," which is why it is the fairest way to compare investments over different time spans. It says nothing about the bumps along the way, which is both its strength (comparability) and its blind spot (it hides the drawdowns you had to survive).

The formula

CAGR = (ending value / beginning value) ^ (1 / number of years) - 1. If $10,000 grows to $20,000 over 7 years, that is (20000 / 10000) ^ (1/7) - 1, or about 10.4% per year. Note that this is a geometric average, not the simple average of the yearly returns. The distinction matters: a year of +50% followed by a year of -50% averages to 0% arithmetically but produces a -25% total, and CAGR correctly reports the loss.

Benchmarks: what counts as a good CAGR

Past performance does not guarantee future results. For educational and informational purposes only. Not financial advice. Consult a licensed advisor.

Why a high CAGR alone can mislead

CAGR compresses the whole ride into one number, so two strategies with the same 12% CAGR can feel nothing alike. One might have drifted up steadily; the other might have doubled, then lost 60%, then recovered. The second is far harder to actually hold, and most people sell near the bottom and never collect the compounding the CAGR implies. That is why CAGR should always be read next to maximum drawdown and a measure of consistency, not on its own.

CAGR versus average return

Advertised returns often quote the arithmetic average because it looks bigger. Volatility guarantees that the arithmetic average of annual returns is higher than the CAGR, and the gap widens with the size of the swings. When you see a return headline, assume it is the flattering average unless it explicitly says compound or annualized, and treat CAGR as the honest figure.

Nominal versus real

A 10% nominal CAGR during a stretch of 4% inflation is a 6% real gain, and real is what actually buys more later. Over decades the difference is enormous, so when you compare periods, check whether the number is before or after inflation before you conclude one investment beat another.

How to judge a CAGR you are shown

1. Ask over what period. A 30% CAGR over 18 months is noise; a 12% CAGR over 20 years is a track record. Short windows flatter.
2. Check what it is measured against. Beating cash is not the bar; beating a low-cost index fund over the same period is. Many strategies clear the first and fail the second.
3. Look for the drawdown next to it. A CAGR quoted without its worst peak-to-trough loss is half a story, and usually the flattering half.
4. Confirm costs and dividends are in it. A backtested CAGR with no trading costs and price-only (not total) returns is not the number you would have earned.

This is also why revenue CAGR shows up so often in company analysis: a business compounding revenue at 25% a year commands a very different valuation than one growing at 5%, and the same "over what period, and is it durable" questions apply. Growth rates, whether for a portfolio or a company, are only as trustworthy as the window and the assumptions behind them.

The reliable way to know your own strategy's CAGR is to test it honestly rather than estimate it. Run the rule through portfolio backtesting across 20+ years of adjusted data and it reports the compound rate next to the drawdown, with every assumption printed, so the growth rate arrives with the context that makes it meaningful. For the related risk-adjusted view, what is a good Sharpe ratio covers return per unit of risk, and maximum drawdown explained covers the loss you had to survive to earn the CAGR.