What is CAGR?
Compound Annual Growth Rate (CAGR) is the annualised rate at which an investment grew from its initial to final value, assuming smooth compounding. It smooths out volatility and lets you compare investments over different time periods on a like-for-like basis.
CAGR Formula
CAGR = (Final / Initial)^(1/Years) − 1
Frequently Asked Questions
Is CAGR the same as absolute return?
No. Absolute return is the total gain; CAGR is the annualised rate. A 100% absolute return over 10 years is only 7.2% CAGR.
Is high CAGR always better?
Only when adjusted for risk. A high CAGR with high volatility may be worse than a lower CAGR with steadier returns.