CAGR Guide
What is CAGR?
Compound Annual Growth Rate (CAGR) is the rate at which an investment would have grown if it had grown at a steady rate. Real investments fluctuate (up 20% one year, down 10% the next), but CAGR smooths this out to give you a single annual percentage.
Why use CAGR instead of Absolute Return?
Absolute return tells you how much you made (e.g., "I doubled my money"), but it ignores how long it took. Doubling money in 2 years (41% CAGR) is amazing. Doubling money in 20 years (3.5% CAGR) is worse than a savings account. CAGR factors in time.
Formula
The formula is: CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1