1. What is CAGR?

The 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.

2. How Does the Calculator Work?

The calculator uses the CAGR equation:

Where:

• \( Begin \) — Initial investment value (USD)
• \( End \) — Final investment value (USD)
• \( year \) — Investment period in years

Explanation: The equation calculates the consistent rate of return that would be required for an investment to grow from its beginning balance to its ending balance.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a smoothed annualized return that eliminates the effects of volatility and provides a clearer picture of investment performance over time.

4. Using the Calculator

Tips: Enter the beginning value and ending value in USD, and the time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average annual return?
A: CAGR accounts for compounding while average return doesn't. CAGR gives the geometric mean return while average return gives the arithmetic mean.

Q2: What are good CAGR values?
A: This depends on the asset class. For stocks, 7-10% might be good. For startups, investors might expect 30%+ CAGR.

Q3: What are limitations of CAGR?
A: CAGR doesn't account for investment risk, volatility, or cash flows during the period. It assumes smooth growth.

Q4: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative indicating loss.

Q5: How is CAGR different from annualized return?
A: They're essentially the same when measuring performance over multiple years, but annualized return can refer to periods shorter than one year.