Your Fund Says 8% a Year. Your Account Says Less. How to Calculate CAGR Yourself
5 min read
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5 min read
You put Rp100 juta into an investment. Five years later it is worth Rp134.55 juta. Was that a good result?
Nobody can tell from those two numbers alone. You need one number that says "this grew by about this much every year". That number is the CAGR.
CAGR stands for compound annual growth rate. This post shows how to calculate CAGR in under a minute, why it is more honest than a simple average, and the one case where it gives a wrong answer.
CAGR is the steady yearly growth rate that would take you from your starting amount to your ending amount.
Real returns are never steady. One year is up, the next is down. CAGR smooths that out into a single yearly figure, as if the money grew by the same percentage every year.
The word "compound" matters. Each year's growth is added to the pile, and next year's growth is earned on the bigger pile. So CAGR is not the total gain divided by the years.
You only need three numbers: the starting value, the ending value, and the number of years.
CAGR = (ending value ÷ starting value) ^ (1 ÷ years) − 1
The little hat (^) means "to the power of". On a phone calculator, use the x^y key. Or type it into a spreadsheet as =(end/start)^(1/years)-1.
Here is the Rp100 juta example. This is NetWort arithmetic with made-up numbers, not a real fund.
CAGR is about 6.1% a year.
Check it by working forward. Rp100 juta grown by 6.11% for five years gives about Rp134.6 juta. It matches.
Now the useful part. Say those five years looked like this:
| Year | Return | Balance at year end |
|---|---|---|
| 1 | +30% | Rp130.00 juta |
| 2 | -20% | Rp104.00 juta |
| 3 | +25% | Rp130.00 juta |
| 4 | -10% | Rp117.00 juta |
| 5 | +15% | Rp134.55 juta |
Add the five returns and divide by five: (30 − 20 + 25 − 10 + 15) ÷ 5 = 8%. That is the arithmetic average, the plain "add up and divide" average.
If your money really grew 8% a year, Rp100 juta would be about Rp146.9 juta after five years. It is Rp134.55 juta. The average promised more than you got.
CAGR says 6.1%, and that matches your balance. For the full story on why the two numbers differ, read our post on the arithmetic mean versus the geometric mean. CAGR is the geometric version, written as a yearly rate.
When a fund brochure shows an average return, ask which average it is. Only a compounded figure tells you what happened to the money.
Use real dates, not rounded years. If you started on 15 March 2021 and today is 15 September 2026, that is 5.5 years, not 5 or 6.
Use the same kind of value at both ends. Compare a balance with a balance, after fees and taxes if you want your own real result. Mixing a price with a balance that includes dividends will tilt the answer.
CAGR assumes you put money in once, at the start, and left it alone. Most people do not invest like that. They add money every month.
Here is how that goes wrong. Another made-up example:
Plug in the start and end only: (230 ÷ 100) ^ (1 ÷ 3) − 1 = 0.32. CAGR says 32% a year.
That is nonsense. Most of that growth is just your own deposit. The formula counted your new Rp100 juta as profit.
The fix is to use a method that respects the timing of each deposit. Two common ones are time-weighted return and money-weighted return (also called XIRR). Our guides explain the difference between time-weighted and money-weighted return and why your broker's return can differ from your XIRR.
Rule of thumb: use CAGR for one lump sum or for comparing two assets over the same period. Use XIRR when you make regular deposits or withdrawals.
CAGR also hides the ride. Two investments with the same CAGR can feel very different on the way. Do not read it as a promise of smooth growth.
Open the NetWort Dashboard. Look at your total portfolio value over time, then use the formula above on your own start and end values. If you have been adding money along the way, compare the answer with your XIRR and see how far apart they are.