Question 1

What is Compound Annual Growth Rate (CAGR)?

Accepted Answer

CAGR is a measure used to determine the smoothed annualized growth rate of an investment over a specified time period. It essentially tells you what an investment yielded on an annually compounded basis.

Question 2

How is CAGR calculated?

Accepted Answer

The formula for CAGR is [(Final Value / Initial Value) ^ (1 / Number of Years)] - 1. This calculator handles the complex math for you instantly.

Question 3

Why use CAGR instead of absolute returns?

Accepted Answer

Absolute returns do not account for the time period of the investment. A 50% return over 1 year is fantastic, but a 50% return over 10 years is very poor. CAGR normalizes returns so you can compare different investments fairly.

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