1. What is Yearly Growth Rate (CAGR)?

The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

Where:

• \( Ending \) — Ending value of the investment
• \( Beginning \) — Beginning value of the investment
• \( Years \) — Number of years in the investment period

Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance over the given time period.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a smoothed annual rate of growth, eliminating the effects of volatility and providing a clearer picture of investment performance over time.

4. Using the Calculator

Tips: Enter the beginning and ending values of your investment, along with the number of years between these values. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average annual return?
A: CAGR accounts for compounding, while average annual return simply divides total return by number of years.

Q2: What are good CAGR values?
A: This depends on the asset class. For stocks, 7-10% is generally considered good over long periods.

Q3: Does CAGR account for volatility?
A: No, CAGR shows only the smoothed annual growth rate and doesn't reflect investment risk or volatility.

Q4: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative.

Q5: What are limitations of CAGR?
A: CAGR assumes steady growth, which rarely happens in reality. It also doesn't account for additional investments or withdrawals.