Understanding CAGR

The definitive guide to the Compound Annual Growth Rate.

Quick Definition

The Compound Annual Growth Rate (CAGR) measures the geometric progression ratio that provides a constant rate of return over the time period.

The Formula

CAGR = (EV / BV)^1/n - 1

EV: Ending Value

BV: Beginning Value

n: Number of Years

Why It Matters

Unlike average annual return, CAGR smoothes out the volatility of varying annual returns, giving you an accurate picture of the steady growth rate of an investment over multiple years. This makes comparing different assets or strategies much more straightforward.

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