Can CAGR be negative, and what does it signify?

CAGR can be negative if the ending value is lower than the starting value over the measurement period. A negative CAGR indicates that the investment is shrinking rather than growing.

For example, if you invested ₹1,00,000 and its value reduced to ₹80,000 after 5 years, the CAGR would be:

CAGR = (80,000/1,00,000)^(1/5) - 1 = -4%

The -4% CAGR shows an annualised loss of 4% over the 5-year period.

A negative CAGR signifies poor performance, erosion of capital, or high risk. It suggests the investment strategy is flawed and unable to generate returns over time. Portfolios with negative CAGRs need to be reviewed to stem declines.

Just like how positive CAGR demonstrates the power of compound growth, negative CAGR also compounds losses over time. The longer capital remains negative, the more difficult it becomes to recover the losses.

While occasional negative returns may be tolerated, a multi-year negative CAGR signals the need for immediate corrective actions to change the trajectory and avoid depleting capital. You may use an online CAGR calculator to calculate the CAGR in percentage.