What is a good CAGR?

• A good CAGR depends on the type of investment or business.
• For stocks, a CAGR of 7% is often considered good.
• For mutual funds, a CAGR above the market average (around 8%) is usually good.
• For businesses, a good CAGR varies by industry.
• High CAGR looks attractive, but sustainable CAGR is often more valuable long term.

• CAGR (Compound Annual Growth Rate) shows the average yearly growth of an investment, including compounding.

• It's more accurate than just looking at raw returns or yearly changes.

• CAGR is useful for comparing investments or tracking progress toward goals.

• The CAGR formula is simple:

  (Ending value / Beginning value)^(1 / Years) - 1

• It doesn't show volatility or ups and downs, only the smoothed-out growth rate.

So what is a good CAGR? A good CAGR is simply one that beats inflation and puts you ahead of the market average. If inflation is 3% and your money is compounding at 8%, you're making progress. If it's below inflation, you're losing purchasing power.

But here's the thing — what looks good in one situation might be disappointing in another. A 5% CAGR on government bonds is solid, but a 5% CAGR for a tech startup would be terrible. That's why you can't look at CAGR in isolation. Always compare it against the right benchmark.

For stocks, people usually point to 7%-10% CAGR as being solid. That's not random; it comes from history. The S&P 500, including dividends, has hovered around that number for decades. So if your portfolio is in that zone, you're basically in line with the market.

But hitting above that, let's say 12% or even 15% over a ten-year stretch, that's really strong. Not many investors manage it. And if you do, it usually means you either picked a couple of winners early on or took on extra risk without realizing it. Now, the important thing about CAGR is that it hides the bumps. Stocks don't climb in a straight line. You might have one year at +25% and the next at –18%, but CAGR smooths that all out into one neat number. It is helpful for comparison, but doesn't tell the whole story of what it felt like to hold.

So, a good CAGR for stocks isn't just the number. It's whether you can keep it going, stomach the ups and downs behind it, and whether it beats inflation. A steady 8% CAGR for 30 years will beat most people chasing 20% and burning out after two.

Mutual funds are all about consistency. A good CAGR here means beating the benchmark they're tied to. If the S&P 500 is compounding at 8% and your mutual fund is doing 10% over the same decade, that's good.

Here's what matters more than the raw number:

• Has the fund kept up for at least 5-10 years?
• Is it consistently above inflation?
• Does the CAGR beat the category average?

A flashy 20% CAGR for one year doesn't prove anything. A steady 9% CAGR for a decade does.

A good CAGR for a business isn't universal; it depends on where the business is and what industry it's in. For a supermarket chain, 6% revenue growth might be fantastic. For a hot new SAAS startup, 6% would probably make investors walk away.

Early-stage companies usually post big CAGR numbers, sometimes 20% or 30% or more, simply because they're starting small. Doubling from $100k to $200k in sales is much easier than doubling from $100 million to $200 million. That's why later on, when the base is bigger, sustaining even 5% annually can be impressive.

You also can't compare across industries. A utility company growing at 4% per year might actually be best in class. Meanwhile, a fashion retailer with 4% CAGR probably looks like it's falling behind.

The point is that you always have to compare within the right peer group. A good CAGR in business is less about being big and more about whether this pace actually lasts.

Every industry has its own idea of good in terms of CAGR values:

• Tech startups: 20%-30% CAGR is good.
• Retail or manufacturing: 5%-10% is common.
• Utilities and energy: 3%-6% is often considered good.

These aren't hard rules. They're averages that give you a baseline for comparison. If a company is far above its industry's average CAGR, it's usually doing something right, or taking on a lot more risk.

A 40% CAGR looks impressive on paper. But can the business or investment actually keep it up? That's the question investors care about.

Sustainable CAGR can be more significant than big numbers. A company compounding steadily at 8%-10% over 15 years is usually a better bet than one rocketing at 40% for two years before collapsing. High growth attracts attention, but steady growth builds wealth.

The easiest way to judge a CAGR is to ask three questions:

1. Is it higher than inflation?
2. Is it better than the average in its category?
3. Has it been consistent over several years?

If the answer is yes to all three, it’s probably good. If not, the number might look exciting but fall apart under scrutiny.

Say you invest $20,000 in an index fund. Ten years later, it's worth $52,000. That works out to about 10% CAGR — strong and in line with stock market history. Or take a small business that grows revenue from $1M to $2.5M in seven years. That's about 14% CAGR, which would be excellent in many industries. The key is that both examples show steady, compounding growth, not just one lucky spike.