The Compound Annual Growth Rate (CAGR) is one of the most important metrics in investing. Unlike a simple average annual return, CAGR accounts for compounding — the effect of reinvesting gains year over year. This makes it vastly more accurate when comparing investments across different time periods or asset classes.
For example, if a portfolio grows from $10,000 to $19,487 over 7 years, the CAGR is exactly 10% per year. But the headline 'average annual return' could be much higher or lower depending on year-to-year volatility. CAGR smooths out that noise.
On StressTest.pro, CAGR is calculated for 1-year, 3-year, 5-year, and 10-year windows based on daily market data. We display both nominal CAGR and Inflation-Adjusted CAGR (Real CAGR) to give an accurate picture of true purchasing-power growth. A positive 10Y CAGR above the prevailing inflation rate means the asset has genuinely grown wealth over the decade.
A common pitfall: CAGR assumes a smooth path and ignores volatility. Two portfolios could have identical 10Y CAGRs but wildly different risk profiles. Always pair CAGR with Max Drawdown and Volatility to get the full picture.