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CAGR: Easily Calculate Your Portfolio’s Compound Annual Growth Rate

The CAGR function in MarketXLS helps you measure the annualized rate of return of a portfolio over a specific period. Whether you need to validate past performance or project future returns, this simple yet powerful function streamlines portfolio analysis directly in Excel. By specifying the time horizon and initial investment, you can quickly determine how much a portfolio has grown year over year on average.

Why Use This Function?

  • Provides a straightforward way to gauge long-term portfolio performance.
  • Ideal for comparing different portfolios or asset allocations over months or years.
  • Assists in projecting future gains and evaluating the consistency of returns.
  • Simple to implement in Excel with MarketXLS—no additional coding required.
  • Helps investors and analysts make data-driven decisions using clear performance metrics.

How to Use in Excel

=CAGR(portfolio, [period], [initialAmount])
  1. In your Excel worksheet, select the cell where you want the CAGR value to appear.
  2. Type “=CAGR(” followed by a reference to your portfolio data, the desired period in months, and an optional initial investment amount.
  3. Press Enter to see your calculated Compound Annual Growth Rate.

If you omit the period or initialAmount, the function defaults to 12 months and $10,000 respectively.

Parameters Explained

Parameter Description Example Values Notes
portfolio The portfolio composition object or reference in Excel. A2 or JSON object in a cell Must contain valid ticker symbols and their weights. The function calls the MarketXLS backend to process these.
period Number of months over which to compute the CAGR (optional). 12, 24, 36 Defaults to 12. Adjusting this will change the annualized return over a different timeframe.
initialAmount Starting investment amount (optional). 10000, 5000 Defaults to 10000. Influences how the return is calculated.

Example Usage

Basic Examples

  1. Using defaults for period and initialAmount:
    =CAGR(A2)

    • Here, A2 contains a valid portfolio definition (e.g., {"MSFT":0.5, "AAPL":0.3, "TSLA":0.2}).
    • The function automatically uses 12 months and a $10,000 starting investment if no other arguments are provided.
  2. Specifying a custom period but keeping the default initial investment:
    =CAGR(A2, 24)

    • This calculates the compound annual growth rate over a 24-month window (2 years).
  3. Fully specifying all parameters:
    =CAGR(A2, 36, 5000)

    • Calculates CAGR over 36 months (3 years), starting from a $5,000 initial investment.

Advanced Scenarios

  1. Multiple portfolios comparison:

    • Create separate references for different portfolios in Excel (e.g., A2, A3, A4).
    • Use =CAGR(A2, 12, 10000), =CAGR(A3, 12, 10000), and =CAGR(A4, 12, 10000) to compare each portfolio’s annualized growth side by side.
  2. Testing various holding periods:

    • For a single portfolio reference in A2, try =CAGR(A2, 12), =CAGR(A2, 24), and =CAGR(A2, 36) to see how the annualized return changes for 1, 2, or 3 years.
  3. Hypothetical reinvestment scenarios:

    • Change the initialAmount in different cells (e.g., B2 containing 5000, B3 containing 20000) to gauge how starting capital can affect long-term returns.

Common Questions and Troubleshooting

• "Why am I getting 'NA'?"

  • If MarketXLS detects an invalid portfolio or a license issue, it may return "NA". Ensure your symbols are valid US-traded assets and your MarketXLS license is active.

• "What if the portfolio data is empty or missing?"

  • The function will either return an error message or "NA". Double-check that your portfolio composition contains at least one ticker with a non-zero weight.

• "Does the function handle large portfolios?"

  • Yes, but confirm you haven’t exceeded any MarketXLS-imposed limits (such as 500 tickers).

• "How do different periods impact the calculation?"

  • The period affects the length of the monthly returns considered. Longer or shorter times can change the annualized rate, so pick a value consistent with your investment horizon.

• "Is the initialAmount mandatory?"

  • No, it defaults to $10,000. However, specifying a different amount is helpful if you started investing with a different figure.

In summary, the CAGR function in MarketXLS gives you the flexibility to measure and analyze your portfolio’s annualized returns right in Excel, offering vital insights into long-term growth potential. Experiment with different periods and initial investment values to uncover deeper trends and make more informed decisions.

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MarketXLS Excel Add-in Tutorial - How to Use CAGR and Other Financial Formulas
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