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CAGR Formula:
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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.
The calculator uses the CAGR formula:
Where:
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, assuming profits were reinvested at the end of each period.
Details: CAGR is widely used to compare the historical performance of different investments, analyze business growth, and make investment decisions. It smooths out volatility and provides a clearer picture of long-term performance.
Tips: Enter the starting value, ending value, and number of years. All values must be positive numbers. The result will be displayed as a percentage representing the annual growth rate.
Q1: What is a good CAGR percentage?
A: A "good" CAGR depends on the investment type and market conditions. Generally, 7-10% is considered good for stock investments, while higher returns carry higher risks.
Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect, while average annual return simply averages yearly returns. CAGR provides a more accurate representation of growth over time.
Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the starting value, CAGR will be negative, indicating a loss over the period.
Q4: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't account for volatility. It also doesn't consider additional investments or withdrawals during the period.
Q5: How can I use CAGR for investment planning?
A: CAGR helps project future values based on historical performance and set realistic expectations for investment growth over time.