1. What is CAGR?

The Compound Annual Growth Rate (CAGR) is a measure of 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 individual assets, investment portfolios, and anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

Where:

• End Value — Final value of the investment
• Begin Value — Initial value of the investment
• n — Number of years

Explanation: The formula calculates the smoothed annualized gain of an investment, eliminating the effects of volatility and providing a clearer picture of investment performance.

3. Importance of CAGR Calculation

Details: CAGR is particularly useful when comparing the historical performance of different investments or when projecting future growth based on past performance. It's widely used in financial analysis to compare investment alternatives.

4. Using the Calculator

Tips: Enter the beginning and ending values of your investment in currency units, and the time period in years. 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, ignoring compounding effects.

Q2: What are good CAGR values for investments?
A: This depends on the asset class. For stocks, 7-10% is generally good. Higher risk investments may aim for higher CAGRs.

Q3: Can CAGR be negative?
A: Yes, if the investment loses value over the period, CAGR will be negative, representing an annualized loss.

Q4: What are limitations of CAGR?
A: CAGR doesn't account for investment risk or volatility. It assumes smooth growth which rarely happens in reality.

Q5: Is CAGR the same as annualized return?
A: Essentially yes, though sometimes annualized return might refer to other calculation methods depending on context.